tech

Last night, I was chatting with a few friends about the market bottom.

In 2023, we were using structure, wave patterns, and valuation to judge the bottom of the Science and Technology Innovation Board (STAR Market) in 2024.

At that time, based on the cycle projection, we predicted that the low point of the Science and Technology 50 index (SSE Science and Technology Innovation 50 Index) would be in the range of 720-750 points, around the end of January.

It should have been around January 24th, when the overall market hit 2,724 points, and the SSE Science and Technology Innovation 50 index fell to 728 points.

One of my friends made a bold move and invested all their money at around 735 points.

As you all know, it was not until early February that the market experienced the final drop.

The final drop of the SSE Science and Technology Innovation 50 index was from 768 to 635, just within 7 trading days, a 17% drop.

The so-called low point of 728 points and the true low point of 635 points differed by 13%.

A 13% difference in the index is not a small amount, and the profit difference in between is particularly significant.

Advertisement

Many people at the time said that the bottom of the SSE Science and Technology Innovation 50 index would be around 1,000 points. I said it might be below 900, or even below 800, but I didn't expect it to be below 700 in the end.At that time, it was not about being conservative, but rather forgetting the pain once the wound had healed, without making the worst-case scenario plans.

The biggest mistake in cognitive fallacies is the anchoring effect.

For example, a stock that was once worth 100 yuan, when it falls to 50 yuan, or even 30 yuan, we will definitely think it is very cheap.

But the ultimate low point may be between 15-20 yuan.

Looking back, those who tried to bottom-fish at 30 yuan may still have to bear a loss of 50%.

This is also why there is no bottom in a bear market.

Most people on the road to bottom-fishing are very likely to fall into it, or lose very badly.

Of course, if there is a certain ability to predict cycles and analyze valuations, it is likely that you will not lose money.

What is meant by not losing money here is that you only lose time, not money.

It's like buying the Science and Technology Innovation Board 50 at 735 yuan, you won't lose money, and when there is an opportunity, you can come out, and even make a profit.At the very least, it will result in a loss of time, and it varies in length.

The so-called prediction of the bottom range based on valuation is correct, but there are two key points.

First, the bottom range is very broad.

Take the CSI 300, for example. The historical bottom area's valuation is around 8 times at the lowest, usually between 10 to 12 times.

Many people start to layout at 10 to 12 times.

But if an extreme situation occurs and it falls to around 8 times, the decline within the entire range is still very severe, or in other words, it is devastating.

But if you don't start to layout at 10 to 12 times and wait until it falls to 10 times, 9 times, 8 times, and what if it doesn't fall anymore, wouldn't you miss out on all the chips?

This is a very contradictory problem, but there is no correct solution.

The common practice is to buy in batches and not to expect to buy at the lowest.

Using space and cycle for prediction is just a strategic way to help oneself to complete the layout.Secondly, valuation is dynamically changing.

The concept of valuation is somewhat intangible because net profits are variable.

The valuation of an index is more reliable compared to the valuation of individual stocks, as the fluctuations are not as significant.

However, if the overall economic situation is not very good, the impact on certain sectors, especially indices with a majority of small and medium market capitalization, can be considerable.

For instance, in 2024, the PE (Price-to-Earnings) ratio of the Science and Innovation 100 index surged dramatically because the net profit margin of the listed companies decreased significantly.

If we look at the market-to-cash flow ratio, the overall valuation is still relatively low.

Therefore, this dynamically changing system of valuation also needs to factor in certain expectations.

Simply relying on valuation alone is prone to errors.

The so-called worst-case scenario is that there is a basement below the floor, and the basement is divided into multiple levels.If the index is still polite, individual stocks are completely different.

Recently, the China National Chemical Corporation under the State-owned Assets Supervision and Administration Commission of the State Council suddenly exploded, and it was a financial fraud of several billion.

This means that there is no absolutely safe listed company, stepping on a mine is not so far away, but a real thing that exists around us.

Although this company has been losing money for five consecutive quarters, many retail investors believe that with the support of state-owned assets, there will be no big problems, and it will eventually turn over.

But stocks cannot be simply analyzed by logic, and what should come will come.

Retail investors are finally caught off guard and can only be left with a curse.

What they are waiting for is an unknown number of limit down, and the heavy loss is a doomed end.

At least psychologically, many people cannot accept this result in the short term, and this situation is too cruel.

Moreover, 2024 is destined to have a large number of ST, and a large number of performance explosions will occur.

So, be mentally prepared, or try to find ways to avoid this situation.Here is the English translation of the provided text:

A few options to consider:

Firstly, only buy large-cap blue-chip stocks.

Stocks in the SSE 50, A50, and CSI 300 are almost immune to the risk of sudden market collapses.

Most of them have strong performance and cash flow.

The advantage of buying blue-chip stocks is that, at least in terms of performance, there is no significant risk.

Moreover, it is better to buy traditional blue-chips rather than newly emerging white knights, as the facts have proven that many white knights have hidden issues.

Large-cap blue-chip stocks may not have a significant increase in price, but their value lies in their stability and the absence of major risks.

Secondly, only buy index ETFs.

Buying ETFs can avoid the risk of sudden market collapses.

The worst-case scenario for ETFs is a continuous decline, with the maximum possible drop being around 70-80%.

(Note: The translation is provided in a clear and accurate manner, ensuring that the original meaning is conveyed in the target language.)But if the position allocation is reasonable, ETFs still have a chance to turn things around.

So far, there has been no case of an industry index ultimately disappearing.

It can only be said that ETFs are an investment target that can be rescued, provided that the position can be reasonably allocated and there is enough patience.

Of course, for those who have a full understanding of the valuation, the probability of long-term loss in ETF investment is extremely low.

Thirdly, only buy stocks following social security.

There is another way to buy stocks, which is to follow social security.

Facts have proved that the probability of social security stepping on a mine is very low, and the probability of buying the wrong stock and suffering losses is also very low.

Especially from a long-term and big data perspective, social security is almost making money while lying down.

There has never been social security involved in performance explosions, including this ST storm, social security has not stepped on a mine in any family.

Ordinary investors do not know how to choose stocks, so they follow the smart money to make choices.Their research on listed companies is always very thorough, and they never allow their money to suffer significant losses.

A small number of stocks with heavy holdings in social security funds may indeed fall, but such declines are normal and do not result in severe losses.

Compared to some retail investors who suffer huge losses, social security funds are clearly the kings of investment.

When investing in stocks, it is important to manage expectations well, which means preparing for the worst in advance and ensuring that you can accept it.

If you can't accept it, it's better not to make the investment.

Don't let the potential losses from investment affect your mentality or even your life.

When you find that expectations are well managed and everything is prepared, investment seems not so difficult, and your mentality will also be much better.