Recently, a number of stocks, such as Changjiang Power, Nanjing-Shanghai Expressway and China CNOOC, have set a record high in stumbling.
Even a slow bull stock like Changjiang Power, which has been hitting new highs for 20 years, has recorded a monthly decline of more than 5% for five times in the past three years. If investors lack a pre-judgment on the degree of bumps on the road to investment, then a bad investment experience is likely to wash investors out.
In fact, investment is counter-intuitive. In the bottom area of the stock market, Mr. Market is cold and depressed, and the already cheap stock price will be further cheaper. The rise seems to be in the foreseeable future, and investors can’t help but leave the market to wait and see, but this is precisely the sowing area, just like investors who have been long in blue chips in 2016 and 2018, they have won generous market rewards in the following years; In the top area of the stock market where everyone is hypnotized by the stock price, when investors revel and everyone seems to have a bumper harvest, the stock market just enters the high-risk and low-return range, just like investors who entered the market in 2007 and the first half of 2015, which is an important reason for investors who entered the market in early 2021 to Lacrimosa in the past three years.
What investment should pursue is to earn money that can outperform inflation in the long run, rather than a good investment experience. Even if the Dow Jones index has achieved an annualized rate of return of 11% in the past 70 years, investors will not have a good experience, because the retracement of more than 5% takes up most of the time, and people are either regretting why the last high point was not sold or worrying about when the next high point will come.
Successful investment can’t empathize with the market, especially in extremely pessimistic moments, because only in such moments, the downside risks are limited and the upside benefits are considerable. As David Swenson, the late chief investment officer of Yale University, said, holding uncomfortably different positions is painful until the final victory comes.
Stumbling to a new high
Changjiang Electric Power reached a record high on December 28th, 2023. Since November 18th, 2003, Changjiang Power has increased nearly 20 times in the past 20 years, which is a typical slow bull stock, but the fluctuation range of Changjiang Power is enough to scare off investors who follow suit.
Since 2021, Yangtze Power has increased by nearly 40% in three years, far outperforming the broader market. However, in the past three years, the stock price retreated more than 10% three times, and the retreat rate exceeded 12.7% from March to May in 2021; From October to November 2021, the withdrawal rate exceeded 13%; From July to November 2022, it retreated by nearly 20%.
In the past three years, the number of days that Changjiang Power rose was 344 trading days, and the number of days that it fell was 353 trading days. From a psychological point of view, the pain effect brought by the decline is three times that of the happiness effect brought by the rise. Therefore, although Yangtze Power has increased by 40% in the past three years, if the stock price is frequently checked, investors feel far more pain than happiness.
Nanjing-Shanghai Expressway hit a record high last month. Since its listing in 2001, it has increased by 5.27 times, with an annualized income of 8.3%. In the past three years, Nanjing-Shanghai Expressway has increased by 30%, and the biggest retracement of the stock in the past three years is 25%. As a public utility stock, the fundamentals of Nanjing-Shanghai Expressway are relatively transparent and stable, the dividend yield is clear and relatively predictable, and the intrinsic value is relatively stable, but the stock will also encounter emotional selling during the market downturn. However, in the long run, the stock price will eventually be close to the company’s fundamentals.
Xingqi Ophthalmology hit a record high last month. Since its listing on December 8, 2016, the stock has risen 50 times. The stock has also increased by 174% in the past three years, but the biggest retracement is as high as 59%. In June 2022, the stock peaked at 174.81 yuan, but it fell to 83.47 yuan in October 2022.
Kweichow Moutai, a long bull stock, has increased eight times since 2016, but it has happened three times when it retreated more than 30%. In June 2008, Kweichow Moutai once reached 803 yuan, but its share price fell all the way, and the decline accelerated in October. In November 2018, it once dropped to a low of 509 yuan, with the largest retracement reaching 37%. In February, 2021, Kweichow Moutai once reached 2627 yuan, and in August, 2021, it reached 1525 yuan, with a retracement rate of 42%. During the period from June to October 2022, the maximum withdrawal was 37%.
Volatility is the truth of the stock market.
Because greed and fear dominate the market periodically, the stock market is always accompanied by quite violent fluctuations. When the market is pessimistic, the corresponding price-earnings ratio may fall in the range of 8-9 times, and when the market is optimistic, the corresponding price-earnings ratio will be more than 25 times. Even if the fundamentals of listed companies are steadily rising, the fluctuation of valuation will lead to the share price being easily halved.
Yao Zhang, a stock price investor, once said: "Fluctuation is the nature of the market. How can there be no fluctuation among thousands of various participants? It is the fluctuation that creates a source of profit, allowing various types of investors to find reasons for buying and selling, and allowing value investors to find value-for-money prices."
Duan Yongping almost holds a single stock in the US stock market-Apple, but he thinks that no one may be more happy than him to see Apple’s share price fall. "Investors can only imagine the company as a non-listed company, and they will understand without stock price changes. However, most people can’t do this. Objectively speaking, if there is no way to treat a company as a non-listed company, most investors will eventually lose money. " Duan Yongping once said. In the past 10 years, Duan Yongping’s holding of Apple has earned about 10 times the income, and he has also experienced four plunge in the past 10 years.
Investing in the stock market requires a certain tolerance. Investors need to anticipate stock price fluctuations, even violent fluctuations, as John Berg, founder of Pioneer Fund, said, "If you can’t stand the heat, you should stay away from the kitchen".
This is a real case told by Morgan Hauzer, a famous Wall Street investor, in The Psychology of Money. He cited the example of Dow Jones index and gave a mathematical explanation for this phenomenon.
Image source: Morgan Hauzer, Money Psychology
The gray interval in the picture represents the stage when the current price is at least 5% lower than the previous historical high, and this gray stage is the time when you will be unhappy-because during this "gray" time, you are either regretting why the last high point was not sold or worrying about when the next high point will come. There is no need for accurate statistics at all. We can see with the naked eye that the gray "unhappy" period has occupied most of the time in these 70 years.
Great investors are made, and many investors who have stood the test of time have suffered a lot of market pressure. Charles Munger once said, "Our generation, this batch of people who make value investments, is not made. Stick to it, you don’t even need to be smart. "
Investment needs to distinguish the stock price from the intrinsic value of the stock. Investment needs to be "insensitive". If you keep an eye on the short-term stock price, investors will not only have a bad experience, but also be fooled by the market, buy high and sell low, and run in the wrong direction; If we regard investment as "the stock price is what you pay, and the value is what you get", we should pay close attention to the relatively stable intrinsic value, ignore the jumping stock price, or use the irrational market to buy low and sell high, so that investors can earn long-term money and avoid resonating with market sentiment to form good investment results.
(The original title is "A shares continue to slump, but these stocks have reached a new high! What are the commonalities? Great investments are made! 》）