Source: Red and Green

Expand on Duan Yongping's three sentences through dialectics.

First sentence

Duan Yongping: Generally, when I encounter such situations (especially during a big drop), I will take a thorough and serious look to check if there is anything I misunderstood. If I confirm there are no issues, I won’t care. It's hard to express feelings; I was nervous at first too. In retrospect, nervousness generally comes from a lack of understanding. When you really understand your investment symbol, a decline often makes me feel happy or indifferent.

The individual and the collective constitute a pair of opposites; the market has a collective nature, and collective wisdom is generally smart. Therefore, one must first assume that the market is right, and then take a thorough and serious look.

1. Check if the factors that influenced the decision to Buy have changed.

2. Determine whether the reasons behind a significant drop in shares are temporary or long-term factors, and whether these temporary factors could turn into long-term ones.

If short-term factors may transform into long-term factors, considering safety—often means it can be sold.

In fact, when buying, it is also done with extreme caution, selecting carefully and confirming repeatedly—because the market is generally smart and correct. The personal buy-in is based on one's circle of competency—having the capability oneself or knowing someone capable (such as the management) to empower the target company.

Knowledge and action form a set of opposites. The uncertainty contained in knowledge will lead to uncertainty in one's actions. The certainty within knowledge will lead to certainty in one's actions. Therefore, the key is to see whether the certainty perceived has changed.

Duan Yongping: An outstanding enterprise can anticipate what may happen in the future, but it may not be precise about when it will occur. The focus should be on "what" rather than "when". If the judgment about "what" is correct, then there is no need to worry too much about "when".

At this time, there would be indifference to declines, while having cash would make one feel pleased—this is an opportunity to increase stakes or arbitrage.

Certainty is often based on the concept of cash flow discounting—The value of a company equals the total profit earned during the company's lifecycle—equivalent to whether the company's ability to double profits has changed, or even whether the ability to double again after the first doubling has changed. As long as the second doubling remains unchanged, it is a long slippery slope.

Second sentence.

Duan Yongping: How can one dare not look at demand when making a product? Whether it’s right or not is a matter of skill, while seeing or not seeing is a matter of direction.

Demand, the nature of what is needed, and the level, are the capabilities and potential nature. People only spend money on their needs and certain possibilities, so need and possibility are synonymous with value.

This is meant to start from need and possibility. If not considered, it means seeking other starting points, which means detaching from the starting point of value, and this is dangerous — a business may lose its value.

Starting from need provides people with endless courage and possibility. Starting from interests and right and wrong often evokes fear or leads to dogmatism.

Duan Yongping's doing the right thing — this relates to starting from need, which is also a question of route, doing things right — this also pertains to levels, meaning the nature of possibility.

Possibility can, at the very least, be handled by the process of elimination — that is, trial and error.

The route is also the nature of the path, and the path has a nature of necessity, so it is important to look at the necessity within it, as this necessity leads to one's freedom. Necessity includes,

1. The necessity that input leads to harvest

2. The necessity that harvest is greater than input

The inevitability of individual (individual needs) to general (general needs).

The inevitability of the harvest period continuing.

The route, which is also the nature of points, consists of a group of positive and negative aspects formed by points and surfaces, where a good point allows for movement towards the surface along this line. If it cannot lead to the surface, then this point is unhealthy and cannot last.

The third sentence.

Duan Yongping: If you think something is overvalued, then you can Sell! However, determining if it is overvalued is not easy.

Overvaluation and undervaluation constitute a group of positive and negative aspects. Regardless of overvaluation and undervaluation, they are aspects of individual capability (potential). Within one's capability circle—where one can turn potential into reality—overvaluation does not count as overvaluation. Outside of one's capability circle (where one cannot turn potential into reality), it counts as overvaluation. Within one's capability circle, undervaluation does not count as undervaluation; outside of it, it is still overvaluation.

Within the certainty perceived, it is not overvaluation; outside of the perceived certainty, it is overvaluation.

This capability circle includes,

1. The ability circle of the enterprise itself.

2. The ability circle of individual investors.

3. The ability circle of management.

Overvaluation and undervaluation are both relative and effective to these three ability circles, making it difficult to identify either.

That is,

Duan Yongping: Stocks are priced by each buyer themselves, and can only be bought when one feels they are cheap; it has nothing to do with the market (others). Once you understand this sentence, your stock career will likely have opportunities to continue making profits. (2012.4.14)

Overvaluation or undervaluation is based on the price determined by the buyer. For some people—like Buffett—he can make more companies undervalued in the market, while for others, he may make fewer companies undervalued. This is because everyone's ability circle is different.

For individuals, most publicly listed companies fall outside their own ability circle, and this is also true for Duan Yongping. Therefore, most people operate outside their ability circle, resulting in over 80% losing money.

Thus, needs and possibilities form a set of opposites, so the capability circle comes from understanding needs — that is, understanding the business — and then having the ability to turn a possibility into reality — which can be due to one's own ability, the company's ability, or the management's ability — and then money is earned.

If one has the ability themselves, they earn the most; if the company has the ability, they earn a bit less, and if the management has the ability, they earn even less.

For example, NetEase, Duan Yongping earns the most — because he has the ability himself; Apple and Moutai both have company capabilities, so the earnings are not as high.

Editor/lambor