The Ultimate Investment Comparison: Who Lives Longer

The purpose of investing should not inherently be to profit from other stock market investors, nor should it be to worry and feel disheartened about whether new funds are rushing into the market. For mature investors, it is wise to continuously learn, progress, and iterate their investment systems.

In this rapidly approaching bull market, after the high opening and low closing of the Shanghai and Shenzhen stock markets on October 8th and 9th, many stock investors must have a question: Didn't the major brokerages open millions of accounts during the National Day holiday, with countless new investors rushing in? How come the strength of the new investors is not evident in these two days' market trends? Are they still coming? Can I still count on them?

In fact, I think this question is a typical one for many investors recently, who have been confused by the sharp rises and falls of the stock market, lost their investment direction, and even started to doubt what to do next in their investments, especially wanting to know whether new funds have arrived, are still coming, and whether they can be relied upon.

It might be better to frankly admit that no matter how long you have been in the market, it is impossible to judge short-term market trends. Most people are entangled in why the "new investors disappeared" situation occurred, but I think whether new investors really disappeared is not important or not as important as it seems. Because the purpose of investing should not inherently be to profit from other stock market investors, and you should not be troubled and disheartened by whether new funds are coming or not. Even in such an unexpected high opening and low closing market, I can see that many investors around me have a good mindset. This is just a very good opportunity to learn and summarize one's own cognition and investment system, and one should not be completely unable to accept it when the market goes beyond their expectations.

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The reason why many investors have a good mindset is actually very simple: the equity market should only be a part of asset allocation. Depending on each person's risk preference, the position must be controlled within the psychologically bearable range.

Earning Money Within the Scope of Cognition

Step one, any investor entering the market must first understand that we come to the capital market with our own hard-earned money to make money. Making money can allow us to eat better, live better, and improve our quality of life, which is无可厚非. However, we can only earn money within the scope of our cognition, and we can only earn money within our own risk-bearing capacity. The regulatory authorities repeatedly emphasize the appropriateness of sales in investor education because the importance of risk matching cannot be overemphasized. An investor with a low risk preference who forcibly invests in a high-risk product, or raises the proportion of high-risk products to a level that they actually cannot bear, will be anxious and unable to sleep when there is a fluctuation, and even anxious to ask everywhere, "What's going on? What should I do next?" This kind of investment behavior is destined to be unsustainable and difficult to make money in the long term. Even if you are lucky enough to find a good manager or a good ticket and make money, but do not have a complete cognitive system and asset allocation system that suits you, how can you ensure that you will be so lucky every time? If you can't, then you will always lose all the chips you won by luck in a bad luck time. The capital market is like this, and no one can make money stably in this market by luck alone. You have to believe in mean reversion and believe that we are just ordinary people. We do not live in movies, we do not have the protagonist's halo, and we cannot get the favor of the goddess of fate every time.

Step two, after accepting that we do not have the protagonist's halo, it is to admit that any of our judgments may be wrong, both in life and in investment. Can we bear the consequences of being wrong? Is there an opportunity to correct it? These are all things we need to think about carefully before we invest our money. Clausewitz said: The failure of strategic deployment can never be compensated by tactical success. The Art of War says: The winning army first wins and then seeks to fight, while the losing army first fights and then seeks to win. War and investment seem to be unrelated, but they actually mean the same thing: What if I am wrong this time? Does the magnitude of my mistake give me an opportunity to correct it later? A loss of 10,000 yuan may be earned back by working hard for a month; if you lose 10 million yuan with leverage, you may have to pay off this wrong decision for the rest of your life, then this decision should not be made from the beginning. Therefore, it is not important to say that I judge that the stock market will rise sharply on October 8th and 9th, but I should judge the probability of a sharp rise in these days, and how much capital proportion should I use to match the possibility I judged in advance. Only things with a 100% probability are worth you investing 100% of your position, then, is the possibility of a sharp rise in these days 100%? Obviously not, then we obviously should not invest 100% of our position in this extremely uncertain thing. An overly high position will definitely make investors overly anxious, and then distort their investment behavior. On the contrary, if you only participate in the stock market with about 10% of your position, I believe that the investor's mentality will be completely different, and you can also view the subsequent changes in the market with a normal heart.

Step three, even if I judge that the probability of a sharp rise on October 8th and 9th is very high, assuming it is 60%, should I invest 60% of my position? Of course not. Because the characteristic of the capital market is that you cannot make money with something that everyone knows and the price is fully priced. To give an inappropriate example, I wrote a research report saying that the sun will rise from the east tomorrow, and the correctness of this judgment is 100%. Can I make money with this correct judgment? Obviously not. Because this is something that everyone knows and is fully priced, and what everyone knows is worthless, which is why many people would rather break the law and commit crimes to engage in insider trading, because information is not necessarily valuable, and information difference is valuable. However, is it true that we can only make money through insider trading? Of course not, the same public information, everyone's perspective and judgment are different, and whoever's perspective and judgment are closer to the real situation and closer to the situation that Mr. Market recognizes, Mr. Market's pricing is closer to whom, and who can make money. Everyone knows the information, everyone judges wrong, and you judge correctly, your judgment is valuable and can make money.

So back to this situation and question, there were a large number of new accounts entering the market on the 8th and 9th, is this a thing with an information difference? It should not be, the Shanghai Composite Index opened 10% higher on the 8th, which shows that this information has been known by almost everyone and has a great possibility of being reflected in the transaction price. In the subsequent transactions, it is not whether there are new funds, but the bulls judge that the new funds are more than the market pricing, and the bears judge that the new funds are less than the market pricing or the selling side is more than imagined. At least the trend of these two days shows that the purchasing power of the newly entered funds is indeed lower than expected. Another possibility is that the purchasing power of the newly entered funds is indeed strong, but the selling side is even stronger than imagined, which is the answer Mr. Market tells us afterwards.Incremental Trial-and-Error to Increase Long-Term Winning Probability

I personally misjudged the purchasing power of this batch of new funds. However, I can readily accept my own misjudgment because I only have a modest proportion invested in the equity market. Since my allocation is across multiple public ETF funds with different styles, if I misjudge, I might lose 2%; if I judge correctly, I would only earn an additional 2%. I am merely attempting to use multiple small-position judgments to continuously push up my long-term winning probability. A single misjudgment will slightly affect my asset structure but will not affect my mindset, nor will it affect the adjustment of subsequent asset allocation and the continued execution of plans.

In a certain sense, one must acknowledge that the market is always right. This is a game where capital votes. What you personally think should happen is not important; what the vast majority of the market participants vote with their feet is what truly matters. If you make the right call and make money, laugh it off and summarize the experience for the next time. If you make the wrong call, stand at attention and take the hit, correct the mistake, and learn the lesson. But never make a mistake that you cannot correct.

I have summarized a statement that I find very important. If you think it is important too, write it down and paste it somewhere you can see regularly to review and see if it rings true:

Your values determine your investment objectives; your investment objectives determine your investment strategy; your investment strategy determines your investment methods and targets; your investment methods require your investment capabilities and cognitive abilities to match. If there comes a time when you feel there is a problem, either correct your values to align your investment objectives with your investment capabilities, or study hard to establish a system to keep your investment capabilities up with your investment objectives. Something always needs to change. Once they are matched, your mindset will be coherent; if they are not, you will continue to be anxious and the problem will persist unresolved. There are anxieties for the 8th day and anxieties for the 18th day.

And such ongoing anxiety is clearly not the original intention for us to enter this capital market. After all, we invest to make life better and add icing on the cake, not to become more anxious and make life worse. We are not, and do not need to be, all-round investment managers who are proficient in stocks, bonds, commodities, and foreign exchange. We just need to earn the money we can within our risk tolerance. If retail investors who are at a disadvantage in terms of information, knowledge, systems, hardware, and time commitment can make money by feeling their way in and out quickly, it would be unfair to all participants in this market, especially professional investors who are always learning, progressing, and iterating their investment systems. Even if this happens in the short term due to a bull market, it is unsustainable. Moreover, as someone who has been in the brokerage and fund industry for nearly 20 years, I have seen that those who have made more money with better luck earlier on often fall harder later on, without exception.

Investing is definitely not about who earns more, but about who lasts longer.