A comprehensive set of policies has been implemented; should we follow the trend or be cautious?
A series of favorable policies have been put into place, and investors have finally welcomed opportunities.
On September 24th, the State Council's Information Office held a press conference where the central bank governor, Pan Gongsheng, announced several major favorable policies, including lowering reserve requirements and interest rates, reducing the interest rates on existing housing loans, as well as policies related to the stock market and real estate.
On September 26th, the Central Political Bureau meeting clearly emphasized the need to increase the intensity of counter-cyclical adjustments, proposing to "strongly guide medium and long-term funds into the market."
On October 12th, the Ministry of Finance held a press conference, sending a "reinforcement" signal, implying efforts would be made in terms of increment, scale, and intensity.
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From market feedback, since September 24th, the A-share market has experienced a volatile bull market. Following the clearer stance on October 12th, the market opened with gains on the trading day of October 14th, and the market response was quite positive! The Shanghai Composite Index rose by 2.07% in a single day, the ChiNext Index closed up by 2.6%, and the STAR 50 Index closed up by 3.01%.
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However, on October 15th, there was another round of adjustments, with all three major A-share indices closing lower on October 15th, with the Shanghai Composite Index down by 2.53%, the Shenzhen Component Index down by 2.53%, the ChiNext Index down by 3.22%, and the Beijing Stock Exchange 50 Index down by 1.56%.
As the market's rise before and after the National Day was accompanied by a pullback, investors are slightly puzzled. Is the market really coming back? Is this time the same as usual? How should ordinary investors judge and how to grasp the rhythm?There is a great deal of debate in the market about this. Some argue that it is merely a short-lived bull market, not a long-term one; others suggest that pullbacks are for "picking up passengers on the way back."
In fact, for the average investor, the phrase to be most cautious about is "this time it's different." Gustave Le Bon, in his book "The Crowd: A Study of the Popular Mind," discusses the psychology and behavior of the masses, suggesting that despite technological and temporal advancements, the psychology and behavior of the masses have not made significant progress. "Impulsiveness," "blindness," and "frenzy" continue to be repeated over and over again.
Market trends are highly related to mass psychology.
Perhaps, ordinary investors should step out of the short-term perspective and view and analyze from a medium to long-term perspective.
We believe that returns often come from allocation rather than timing.
We truly usher in a new cycle.
Howard Marks believes that the most important thing to understand in investing is value and cycles.
He categorizes cycles into three broad types: fundamental cycles, psychological cycles, and market cycles, which cover almost all factors that could affect investment decisions.
For this round of market trends, ordinary investors should be more aware of the fundamental cycle—the transition from the old cycle to the new one.
Faced with the long-term market downturn, I found a fund manager who has been studying this issue for a long time.In May of this year, the Public Securities Daily shared Wang Pei's perspective, in which he mentioned the impressive concept of "seizing the spear of the market." At the mid-year strategy meeting of CEF (China Europe Fund), Wang Pei shared his continuous iteration of investment philosophy, persistently seeking structural opportunities amidst market downturns and volatility.
Long-term patience is key.
For the transition of cycles, ordinary investors can look into his research, which might provide some inspiration.
In the past, it was an era of large-scale investment, heavy investment, and major consumer spending, as well as the golden age of commercial banks (high interest rates).
Nowadays, China is entering the post-industrialization, post-urbanization, post-real estate, and aging population era, in a period of transition from old to new drivers, shifting towards a new phase of quality productivity and high-quality development, which requires significant investment in new energy, new infrastructure, new manufacturing, and "bottleneck" technologies.
CEF fund manager Wang Pei made a judgment, "We are about to usher in a new cycle, and we need to actively explore a new batch of core assets."
He summarized the past three types of cycles:
The first type is the real estate cycle. The real estate industry has been in a state of rapid growth for a long time, until these two years when the investment cycle of real estate has been declining.
The second type is the mid-cycle, which is roughly a ten-year cycle of equipment investment. We have experienced two and a half cycles, and now we are at the stage of reducing production capacity.The third category involves experiencing minor cycles, essentially inventory cycles; these cycles typically consist of about seven rounds. At the end of last year and the beginning of this year, we reached the end of the previous inventory cycle. Logically, we should proceed to the next cycle of restocking.
Wang Pei, with his nine-year investment experience at CEF, has a working habit of making an outlook for the following year each year. The titles of these outlooks essentially showcase the process of the three cycles and the evolution of Wang Pei's own investment philosophy.
To keep up with the cycles, understand the cycles, and seize the core assets beneath the cycles.
How to capture new core assets?
The arrival of a new cycle implies that the logic of the past is no longer valid.
We must look for a new batch of core assets from the perspective of the new cycle.
Wang Pei believes that "investment needs to focus on the few most brilliant pearls still left in the industry."
The different launch times of the ChiNext and STAR Market are the best indicators of the changing times.
Before 2021, it was the golden decade for emerging markets. During this period, different entrepreneurs expanded in their respective fields, with the core driving force coming from the continuous upgrading of manufacturing and consumer industries. It was also the golden period for entrepreneurship.
After 2021, we entered the "law of the jungle" phase. Industries and enterprises began to manage in a more refined and scientific manner. Entrepreneurs started to truly engage in high-quality management control, which is very evident in the internet industry. Many enterprises, after contracting, gradually found the focus for renewed development.In the past, opportunities between 0 and 1 were abundant, but now they are becoming increasingly scarce.
Therefore, structural opportunities may once again shift towards industry leaders and blue-chip companies.
Wang Pei believes that investors can look for potential new core assets in the future from three major clues: the cost-effectiveness of equity market investment, the shift of structural opportunities towards industry leaders, and the transformation of enterprise growth and management methods towards high quality.
He provides six directions for ordinary investors to refer to:
1. Growth-oriented value assets with characteristics such as low valuation + growth potential + good market position, mainly involving fields like cost-effective consumption and high-end manufacturing.
2. Value assets related to high dividend payments, mainly involving sectors such as finance, public utilities, and operators.
3. Value assets with natural resource themes, characterized by strong era features + sustainability, mainly involving fields like non-ferrous metals and energy, as well as overseas benchmarks.
4. Growth-oriented assets with a focus on technology themes, to counteract unfavorable market style factors in stages, and can play a balancing role in a balanced strategy. It is necessary to find companies that are technology-driven and truly benefit from this, because in the future, AI can not only empower technology but also cause many technology companies to lose business. This is a double-edged sword, unfavorable for small companies, but both advantages and disadvantages coexist for large companies, depending on where their resource endowments lie.
5. Assets of the out-of-favor reversal type, mainly involving fields such as agriculture and new energy, with industry characteristics that are not unique and will change with cycles.
6. Enterprises with global competitiveness, including leading companies in various industries, whose revenue and profits are more influenced by overseas demand changes. It is important to find truly competitive enterprises, which should be a medium and long-term consensus that everyone might reach under the future development trend of the Chinese economy.Only by continuously grasping the changes in trends can one better seize core assets.
Choices for Ordinary Investors
Faced with the series of significant changes analyzed earlier, what should ordinary investors do?
As mentioned before, the stock market is undertaking strategic tasks this time.
Everyone hopes that this will be a slow and long bull market.
For ordinary people to enter the stock market, Zhigu has several suggestions:
1. Always use spare money. Money for living expenses and capital preservation cannot be touched. One standard is that if the money you invest loses half of its value and it does not affect your life, then it's OK.
2. It is best to enter the market through funds. Bull markets involve sector rotation, which most people cannot grasp, and you may not make money even if the overall market surges. You can consider funds that cover a broader range.
3. Small fluctuations are hard to predict accurately, while large trends are more apparent. Indicators such as the stock market thermometer and Buffett's securities valuation ratio can measure the extent of stock market bubbles, and these indicators have been proven effective through historical tests. Restrain your greed and treat bubbles cautiously when they appear.