Today's article may feel like a bucket of cold water, splashed onto many dreamers.
The reason it's called a dream is because everyone hopes to get a stock that grows tenfold in ten years.
The reality is, either the stocks held for the long term, after a long wait, have not seen a tenfold increase, or they were once owned but ultimately missed.
Today, I want to advise everyone to give up the idea of a tenfold stock in ten years from now.
The main reason for writing this article is that many investors, transitioning from high-frequency trading to value investing, have encountered some misconceptions.
In the era of advocating value investing, many have been blinded by various things.
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This is like jumping out of one pit of fire and into another.
In this market, you can make two kinds of money: one is the money from cycles, and the other is the money from growth.
The so-called money from cycles is the value created by the ups and downs driven by the inflow and outflow of funds, which is the difference in price.
The so-called money from growth is when a listed company becomes bigger and bigger, with net profits increasing, creating growth money that goes up but does not fall down.On the surface, fluctuations themselves do not generate value; they tend to be more about gambling, making the money harder to earn.
The money from growth is the money of value, leaning towards making the pie bigger, where everyone can make money, and this money is easy to earn.
However, the reality is even more brutal than imagined.
The money from fluctuations is now easier to earn than the money from growth.
You might be surprised to reach such a conclusion.
That's because the money from growth has mostly been taken by the main force of capital.
The main force is the first to earn the money from short-term fluctuations, the second to earn the money from trend growth, and the last to earn the money from long-term fluctuations.
In other words, as ordinary retail investors, it is the simplest to take the last track and earn the money from long-term fluctuations.
The money from trend growth is divided by two aspects.
First, the high price-to-earnings ratio of the issue, the IPO takes away a part.The registration system, in fact, is a form of over-issuance. The prices at which many companies go public are not just exaggerated, they are astonishing.
Companies with a price-to-earnings ratio of a hundred times are essentially fundraising through listing.
To put it bluntly, they are leveraging the capital market to sustain a company.
The interest generated by the funds they raise each year is more than enough to spend.
Do you think it's possible for such listed companies to achieve a tenfold increase in ten years?
The initial public offering pricing has already consumed 3-5 times, directly compressing the tenfold growth.
There are far too many cases of breaking the issue price at the opening or falling all the way after a few days of speculation.
Secondly, the trend of rapid speculation is divided by large funds.
When retail investors discover value, they are often one step behind the market and have to accept higher prices.
Usually, within one or two months, the value of major industries that have been unearthed will rise by 2-3 times.When retail investors see the value, it's usually when they are catching the market at high levels, and this has never changed.
While you are still trying to figure out what artificial intelligence really is, the entire sector has almost doubled, which is an astonishing speed and efficiency.
Because in today's market, there is an abundance of speculative capital, never a lack of money, just a lack of good opportunities.
Any good industry, once it is unearthed, by the time the average investor sees it, the price is already soaring.
The tenfold increase you speak of is also instantly consumed by capital by 2-3 times, leaving you with very little.
The first round of capital speculation is on the concept, which is actually risk-free, while the second round is on performance, which is actually risky.
Because the concept may be present in many stocks, but performance can only be reflected by a portion of the companies.
Not only do you have to catch the market at high levels, but you also have to find gold in the pebbles, to find those listed companies that truly have value.
Do you still think it's easy to find a tenfold stock in ten years, under the siege of large capital, in the maze created by capital?Ordinary investors, in the future, will have more opportunities to invest through large valuation cycles than searching for dream stocks that can multiply tenfold.
Especially with the cyclical changes in industries, many cannot last even a decade.
The majority of listed companies on the A-share market are at their peak for only 2-3 years.
Therefore, even for stocks that can multiply tenfold, most of them have completed their rise within 2-3 years, and there is no such thing as a ten-year period.
In ten years, it is possible to make 2-3 large cycle investments.
If you can find a doubling opportunity in a 5-year investment cycle.
Then, in a 10-year cycle, achieving a 4-fold increase is still very hopeful.
So, keeping a calm mindset and looking for the laws of the cycle is a good investment method.
The fluctuations of small cycles are very difficult for ordinary investors to grasp.
Because small cycles do not follow the valuation logic, they are completely based on their own speculation logic.That is to say, the fundamentals of the listed company may not have changed much, or they have not yet been reflected, but the stock price has already risen or fallen significantly.
This kind of speculative approach puts retail investors at a clear disadvantage in terms of information and capital volume.
The investment logic of the long cycle is completely different, and it is more inclined towards valuation logic.
In simple terms, it is to buy when it is cheap and sell when it is expensive, without any shortcuts or other methods.
The essence of a stock's rise is that the listed company is making more money.
However, there is another logic line for the rise of stock prices, that is, when the stock is cheap, more people buy it, and the stock price needs to be repaired.
This second logic line is actually an opportunity that ordinary investors can participate in.
What is a cheap stock? In fact, it is a low valuation, with a low dynamic P/E.
It must be emphasized here that the dynamic P/E (Price to Earnings Ratio) should be low enough.
The so-called dynamic refers to the present, not the past, or more focused on the future.If a listed company currently has an annual performance of 1 billion, and next year it will be reduced to 500 million.
Then it represents that if the stock price does not change, the price-to-earnings ratio will have to double.
A sufficiently low dynamic PE refers to the future net profit margin, which must not decline significantly.
On this premise, the overall price-to-earnings ratio is a visible indicator, and the corresponding decline in stock price will increase the safety of the valuation.
Stocks with good performance can be bought more and more as they fall, that's such a simple truth.
The good performance mentioned here does not necessarily mean that the performance increases a lot every year, as long as it does not decrease less and does not lag behind, it is fine.
It is difficult to judge the growth potential of a listed company, but it is relatively easier to judge the stability of a listed company.
When the valuation of a stock is far below the historical average valuation, buy boldly, if you dare not buy individual stocks, then buy the industry.
Because the law of cycles will tell you that this is a golden pit, a pit that can make you money.
Ordinary investors should recognize their own capabilities and make investments within the scope of their abilities and within the reach of their cognition.
Some trading strategies are not suitable for ordinary investors.
Large capital has its own way of playing, and small retail investors have their own methods.
Some money is easy to earn, as long as there is enough time, enough patience, and the method is simple.
Some money is not easy to earn, and it requires comprehensive judgment based on various aspects of cognition.
In addition, the pace of change in the times is very fast, and too many things can happen in a decade, which is impossible to predict accurately, and only the general trend and direction can be judged.
Therefore, within the scope of one's ability, make investments within one's capabilities and earn money under one's own cognition.