Source: Qilehui.

Is it a problem with the execution or the method?

Many people, including myself, may encounter the situation mentioned in the title, where they see a new opportunity, think it's good, but because it's too "new", they are unsure and only dare to enter a small position. As the trend increasingly confirms their judgment, they start to increase their position.

Under the model of adding to positions as the price rises, the perceived cost may not be high but in reality, it is not low. It's easy to relax position control due to previous profitable effects, leading to a slight pullback and turning paper gains into losses.

For trades with unfavorable outcomes, one should review and summarize the experience. Two types of conclusions may arise here:

1. The method is correct but the execution is wrong: entering positions too slowly in the early stages, and cutting positions too late in the later stages.

2. The method itself is wrong, it is a typical case of "adding to losing positions until losses wipe out all gains".

In the review, it is very important to determine whether the difference lies in operational issues or the problem with the method itself. The former needs improvement, while the latter should be transformed or even abandoned. Therefore, it is necessary to first eliminate the latter.

If it is a problem with the method, you would have seen more similar operations and results in the past, such as the one mentioned earlier, "Why copying the homework of Big V is easy to lose", which is actually very similar in terms of the operational method.

If you copy the short-term homework of a big V, if the other party is really a short-term expert, you will definitely lose in the long run. The reason is simple. There is always a time difference from when the big V "bullish" to when they tell you the stock. Short-term stocks generally rise briefly and fall in the long term. During this time period, it is highly likely that they will rise. Assuming it's a two-point difference, it means that every time you earn (lose) two points less than the big V.

Don't underestimate these two points. The success rate of short-term experts is only 60%, with wins and losses. On average, each stock has an expected value of 0.5 points per week. When you copy someone's homework, if they earn one point, you lose one point. That's a 25% loss per year.

In addition, if it is a problem with the method itself, you can also find its logical contradictions through reasoning or even probability calculation.

Let's take "copying homework" as an example. Suppose your strategy is: if you see a big V earning money, then follow their next move; if you see a big V losing money, then swiftly abandon it. Assuming that this big V has a success rate of 66%, taking three instances as an example, your investment results would be:

When the big V is right, you are wrong on a one-to-one basis.

When the big V is right, you are wrong; when the big V is wrong, you are also wrong.

When the celebrity makes a mistake, you choose not to follow.

Or in other words, when you follow for the first time, you have a 2/3 success rate, but when you follow for the last time, you will definitely lose. Therefore, it is a guaranteed losing strategy.

Why do investors instinctively accept this strategy that isn't very good? This is actually related to the learning method we have accumulated over the years, that is, how to explore unknown problems based on past experiences.

Summarize the patterns from past experiences.

If you were unfortunate enough to be transported to a strange planet where the ground is covered in sand and a plant that bears red fruit, according to Earth's experience, this red fruit might be the only thing you can eat, but you can't be sure. As you grow more and more hungry, refusing to eat would be a dead end, so you gather up courage and pick one, taking a small bite to see what happens.

Exploring in an unfamiliar environment is a highly skilled task. First, you need to know which of your previous experiences are most likely to be useful now, and which ones might be harmful.

You start by taking a small bite instead of eating the whole thing, based on the assumption that "toxicity is dose-dependent", which is likely to be true even on an "alien planet", although it still can't guarantee that you won't be poisoned to death.

In fact, eating the "fruit" is no different from randomly picking up a handful of soil and eating it. This is a strange planet, and that thing may not be a fruit at all.

Eating dirt is better than eating fruit because the simpler something is, the more similar it is. Since you can survive, at least oxygen and gravity are certain, and dirt is closer to known things on Earth than red fruit.

Predicting the future based on experience is the way for human survival and also the core method of stock market investment.

The stock market is like an "alien planet" without an absolutely correct method to achieve excess returns. Otherwise, everyone would earn more than the average level. Therefore, any experience comes with a "death trap".

At this time, logical reasoning is more reliable than empirical induction.

Returning to the matter of "copying big V", how can we improve the method? Assuming that the success rate of this big V is increased to 75%, with other factors remaining the same, let's take four instances as an example:

When the big V is "right, right, wrong", you are "two right, one wrong".

When the big V is "right, right, wrong, right", you are "one right, one wrong".

When the big V is "right, wrong, right, right", you are "wrong".

When the Big V says "wrong", you should "not follow".

Your win rate increases to 50%.

Assuming the Big V's win rate increases to 80%, and everything else remains the same, let's take five examples:

When the Big V says "right right right wrong", you should "follow three and fold one".

When the Big V says "right right right wrong right", you should "follow two and fold one".

When the Big V says "right right wrong right right", you should "follow one and fold one".

When the Big V says "right wrong right right right", you should "fold".

When the Big V says "wrong right right right right", you should "not follow".

Your win rate has increased to 60%.

The conclusion is very clear. Strictly following this operation, only when the win rate of the big V is above 75%, can your win rate reach 50%. If the win rate of the big V is 100%, then your win rate will naturally also be 100%.

But most short-term experts rely on 'high frequency + timely stop loss'. The win rate rarely exceeds 55%. Even if considering both short and medium term, the win rate is hardly possible to exceed two thirds. This is the real failure of the 'copying big V' strategy.

So, first try a small amount and then increase the intensity. This method is suitable for two types of learning:

1. When there is a 100% correct rule, such as in mathematical and scientific learning.

2. When there is a high probability of correct rule, such as with a high win rate big V.

The former is regular learning, while the latter requires the development of the most reasonable strategy.

For example, even for a big V with a 66% correctness rate, the correctness rate of copying homework can also be:

Step 1: Take small positions and trade a few times to determine if the probability exceeds 50%. If so -

Step 2: Completely replicate within the shortest possible time without subjective judgment.

Once we understand, we can analyze the issue of "floating profit position increase" at the beginning.

Either don't participate or directly attack with a heavy position.

Summary: For "probability patterns" with an accuracy rate less than 100%, experiential learning itself is a loss to the accuracy rate. The longer the "learning-imitation-feedback" mechanism, the greater the loss.

However, "floating profit position increase" has a more complex issue than "copying homework from a big V" and "surviving on a different planet", and learning has another kind of loss, which I call "learning effect":

The learning effect includes two games:

1. When you summarize the patterns and discover a new opportunity, there are definitely more people who also discover it.

The short-term trend of the stock price depends on the comparison between the "strength of people taking action and the opponents".

The first rule of the game determines that investors who learn and try to buy can increase the stock price, but this increase will reduce future upside potential.

In normal learning, getting a question right is a signal that you have understood a rule. However, in investing, a rising stock price does not necessarily indicate a correct signal. On the contrary, it reduces your future winning percentage.

The second rule determines that when you believe that an increase is a "correct signal" and increase your position, your "comrades" are also increasing their positions. The stock price should accelerate, but if it doesn't, it means that your opponents are accelerating their selling.

Whether you learn or not, science will always remain the same. Once you have mastered a principle, you can extrapolate infinitely. However, learning in investing will change the 'objects of study', so you need to constantly determine whether the rise in stock prices has already reflected your current buying logic to end the investment. Yet the long-term acquired 'learning experience' will always interfere with your judgment, inadvertently leading to excessive extrapolation.

Investing itself is a low-winning probability activity, and the learning effect further reduces the winning percentage. Therefore, when the logical judgment allows for buying, the initial position taken based on feelings should actually be a heavy position attack (of course, within the range of losses you can afford). The average person's increase in position should actually be a decrease in position - especially in the following investment logic:

1. Event game: revolving around financial performance, restructuring, policies, major business developments, etc.

2. Cycle game: strong cycles with unstable valuations and performance.

3. Policy Game: Determining the judgment around a policy.

This type of biased game is short-term opportunity, and the most suitable operation is contrary to the general intuition.

1. Either don't participate when you see an opportunity, or heavily invest and give yourself a chance to add positions at most.

2. Start reducing positions when there is profit.

3. Give up promptly when making a mistake.

Of course, controlling the rhythm also requires skill:

1. Slow down the pace in a bull market, speed up or refrain from participating in a bear market.

2. Slow down the pace for major opportunities, speed up or refrain from participating in general opportunities.

If you are a rather cautious person.

In unfamiliar environments, cautiously learning and exploring is a human nature, as well as an instinct for human survival in complex environments. The above-mentioned chance to heavily invest and strike as a short-term expert is not the norm, but rather a natural talent or “genetic mutation.”

Therefore, for most investors, being cautious when opportunities arise and striking heavily when opportunities fade away mainly comes down to not knowing what kind of opportunities suit them.

If you are this kind of rather cautious person, try to avoid overly speculative short-term opportunities as much as possible, seek opportunities in fundamentals, and look for opportunities with longer-term changing cycles. For example:

1. Individual stock strategy, based on long-term investment logic such as competition dynamics, business models that are not easily changed, avoiding investment logic based on easily changeable aspects like prices, business, products, etc.;

2. Macro strategy, based on long-term allocation strategies made from the unchangeable contradictions in macroeconomic interest rate policies, avoiding decisions based on short-term factors like bottoming policies, slogan-type policies, hollow political concepts, data fluctuations, etc.

Editor/rice