Meaningless investment opportunities

Many people have been annoyed that they didn't buy a stock they were optimistic about, and finally rose sharply, so they thought they had a good vision for stock selection, but they were just unlucky. Optimists also think that luck is equal, indicating that they can earn a lot of money next time.

This kind of chagrin always reminds me of a story I have seen before, in which a group of philosophers disagreed on the definition of freedom when discussing "the meaning of freedom". One of the philosophers gave an example: if the jailer of a prison opens the prison door in the middle of the night while the prisoners are asleep, are the prisoners free now?

Stocks that are bullish but not bought, just as open prison doors do not represent freedom for sleeping prisoners, this kind of investment opportunity not only makes no sense, but also, if you always miss such opportunities, or choose one of the two, you will always choose the wrong one, because luck is equal in the long run, so it just proves that your investment system is flawed.

To take some simple examples, there are often people who are optimistic about a certain stock, but think it is too expensive and wait until it is cheaper to buy it.

This seems simple, but in fact, even a simple opportunity like "de-valuation bubble" cannot be accomplished without a mature investment system.

Why? A stock is more expensive, return to a reasonable valuation in the future, is not what you imagine, it slowly falls down for you to buy because of the expensive valuation. It must have gone down with the help of some bad events, and it may have fallen sharply in a very short period of time. If there had been no such event, it would not have fallen.

Therefore, if you are too expensive to buy a company, it must be a substantial negative or panic decline in the market. Whether or not to implement your plan as scheduled is not only a matter of value judgment, but also needs the support of the investment system.

Many people think that retail investors just buy a few stocks and hold them for a long time without the need for an investment system.

In fact, whether there is the support of the investment system or not is not the difference between institutions and retail investors, but the difference between professionals and amateurs.

What is the investment system?

When Buffett first bought Apple Inc, he had not been able to beat the index for many years, coupled with the fact that Apple Inc lost money at the beginning, so many people laughed at Buffett for saying that he would not buy technology stocks, but ended up buying technology stocks. And if you want to buy it, you don't buy it earlier, wait for others to buy it dozens of times, and you'll be trapped.

As a result, Apple Inc once again saved Buffett's reputation. He made a profit of nearly $100 billion on the stock, making up for the losses on his other positions.

In fact, his previous performance was poor and later he made a lot of money on Apple Inc. It is completely two sides of the same system, on the one hand, we have to endure the pain of not finding a suitable investment for a long time, and on the other hand, we must hit the fruits of a big blow after long-term adherence to the system.

According to Buffett's investment logic, he bought understandable companies with long-term stable cash flow at a reasonable valuation, coupled with a concentrated holding of a few companies, and at a later stage, on the scale of Berkshire Hathaway, it is almost impossible to find an investment object that can beat the index for a long time, so he still has Coca-Cola Company and has no choice.

So this also explains why he didn't buy Apple Inc earlier. Because the Apple Inc Buffett wants is Apple Inc with stable cash flow and consumer stickiness, not Apple Inc who is developing revolutionary products with uncertain prospects. This is still an investment in consumer stocks, but with some technological attributes.

From a fatalistic point of view, Buffett to buy Apple Inc is a doomed thing, Apple Inc is using his maturity to wait for Buffett, Buffett is also waiting for Apple Inc to mature.

So, I'm going to give my own definition of the word "investment system": a stable, proven investment system, like a well-designed fishing net, allows you to stop going around looking for investors. Instead, wait patiently for the investment object to swim into your net like a fish.

This passage is actually Buffett's "baseball player theory", but it is understood here from the perspective of the investment system.

So the purpose of the investment system is not to increase profitability, but to increase profit certainty-which is essential for an institution that needs to operate continuously.

So why do individual investors also need to increase the certainty of earnings?

Five reasons why individual investors need an investment system

Individual investors also need an investment system for five reasons.

First, get rid of self-doubt and pointless attempts.

Investment is a complex activity that can not be simply attributed. It has numerous theoretical schools, which can not simply prove which school is absolutely effective. Many methods need to be adhered to for a long time, and it is difficult to get positive feedback in the short term. As a result, individual investors continue to fail in trying various methods.

At the same time, investment is a probability-based activity, and personal perceptual experience often misleads you. So you need to learn from a system that is relatively theoretical and consistent with your own personality to get rid of self-doubt and focus on research and trading itself.

Second, use the system to gather your own research and transactions.

Value investors should have at least one set of trading methods and one set of research methods. Self-consistency between research and trading is the most basic requirement, but there are some methods that do not work well, and some research methods are contradictory to trading methods. For example, fundamental research and doing T to reduce costs are two completely different investment concepts, which need to be carried out by two teams. Investors want to do it alone. As a result, most of them care about one thing at the expense of the other.

The self-consistency of the method depends on the investment system, through systematization, the research methods and trading methods are fixed, weak water is three thousand, only take a ladle to drink. The key is to know which ladle is your type.

Third, focus on the ability circle.

Different types of companies in different industries have different investment methods, but personal experience, ability, insight and thinking methods are limited. Only by focusing can we strive for good results.

Everyone has their own familiar industries, their favorite business models and company types, and they correspond to specific investment methods. once your investment system is fixed, you can better focus on these areas. to improve the efficiency of your research.

Fourth, cultivate correct trading habits.

In theory, individual investors buy a few white horses to hold for a long time, which is a slightly lower return but a very high winning rate. But in fact, the reason for a large number of retail investors' losses is the wrong trading habits caused by human nature, such as chasing the rise, killing the fall, and doing Taper 0, which are so difficult that even short-term experts can only maintain the winning rate at 60%. There are also emotional trading, like to stay weak and sell strong, like to copy the bottom at will, like to sell stocks at will, too much faith in low-PE stocks, blindly believe in mean regression, and so on.

The trading system in the investment system can help itself to restrain itself with standardized operations, put an end to high-risk transactions, reduce unnecessary transactions, and gather transactions with a high success rate.

Fifth, control the risk.

In investment, when there is a setback, the most common wrong reaction is to rush to get the loss back, and the result of this idea is that a small mistake becomes a big mistake, and a big mistake becomes an irreparable mistake.

But in investment, the first priority is always to control risk. When faced with repeated mistakes, the right response is to stop trading and check to see if there are any fatal problems in your investment system. If not, it's just a short-term wrong style, then wait for the style to change.

The most important thing in the design of an investment system is to control the risks that are bound to be magnified in your trading system.

A meaningful but unnecessary argument

At the beginning of the year, a friend of a fund manager who specializes in TMT investments had an argument with a researcher in a traditional industry.

Fund managers believe that cars are a very bad business model, and huge investments in new products are needed first, but the success rate is not high, resulting in a very conservative industry. Researchers believe that there is no better business model than the automobile industry. Both upstream and downstream can owe money. The only problem in this industry is that it does not repay shareholders and management works for employees.

Who on earth is right? Actually, it doesn't matter. The fund manager later made money by buying Tesla, Inc.. The logic is that the industry is large but the business model is not good, and the one who subverts is of course the investment opportunity; and the researcher has been recommending us to take a heavy position in Great Wall Motor at the bottom last year, because this is the most growth target in the existing business model, and finally the people who listen to him also make money.

Every day, there are countless arguments in the investment community, which are both meaningful and unnecessary. "meaningful" means that the value discovery in investment is a process of voting with money, and the convincing investment logic will be recognized by more investors along with the argument and let the stock price realize itself; "unnecessary" means that each investment logic is only applicable to the corresponding investment system and earn the money you should earn.

With an investment system, you can only earn the money you can earn in your investment system, but without an investment system, you may never be sure where your money is.