During the two years of 2022-2023, many value investors suffered significant investment losses.
This is because the value investment system gradually collapsed in the bear market, coupled with the exacerbation by public funds and a series of short-selling actions by foreign capital, leading to the recent two years being very bleak for blue-chip and white-horse stocks.
Although a large part of the reason is due to the performance growth issues of listed companies and the market's valuation return, the most essential nature is the collapse of capital belief, with no capital actively participating in value investment.
Many people may not quite understand this sentence, what is the collapse of capital belief.
The goal of capital is to make a profit through investment, not necessarily to hold long-term.
This means that when value investment begins to show a short-term top and a large number of trapped positions accumulate, a major trend turning point will appear.
When the stock price enters an overvalued area, the risk will suddenly increase.
The previous liquor, medicine, new energy, including chips, technology, etc., are all the same.
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But the most terrifying thing is that when the stock price is in the process of valuation repair, it does not stop falling after being repaired to a reasonable range.
For example.The stock price of a certain stock is 100 yuan, with a corresponding price-to-earnings (P/E) ratio of 60 times, which is overvalued and needs to be corrected, so it begins to fall.
It falls back to 50 yuan, with a corresponding P/E ratio of 30 times.
The P/E ratio has fluctuated in the long term between 20 and 60 times, with an average P/E ratio of about 30 times, which is a reasonable valuation range.
So, in theory, when the stock price falls back to around 50 yuan, it enters the reasonable valuation range, and the stock price will not appear to be very expensive.
But in reality, if the capital buys at around 50 yuan, there is no room to make a profit.
Only at prices of 40, 30, or even 20 yuan can the capital enter and have the space for a rebound, and make money in the short term.
From another perspective, capital investment needs a safety cushion, not just a reasonable valuation.
You say, an item in the market is estimated to be worth about 10 yuan.
So, is the market price of 10 yuan attractive? Obviously not.
But if it's 8 yuan, 7 yuan, 6 yuan, 5 yuan, isn't the attractiveness much greater?So, the foundation of value investing is not about buying at a reasonable price, but rather about buying in areas of value depression.
If this point can be clarified, one would know where to start with value investing.
This starting point is the key to value investing.
Most value investors are in doubt and pain because they have not grasped the entry point correctly.
Usually, they start investing in value after the price has exceeded the reasonable valuation, which is more than double the cost.
When the entry point for value investing is chosen at a relatively high position or in a downward trend, it becomes very uncomfortable.
The value investing in A-shares has a cyclical cycle.
It's like the distant mountain peak, which requires climbing over one peak after another before reaching the summit.
In theory, one should choose to enter at one valley after another, but you have chosen to enter at one peak after another.
Once you enter, it's a long downhill journey, walking until you doubt life.After a long time, I no longer believe in the idea of reaching the summit; often, I'm out of the game halfway up the mountain.
This is not a mistake of value investing, but it is a sorrow of value investing.
Value investing has large cycles.
If we take the CSI 300 as a reference for value investing, let's look at the historical cycles of the CSI 300.
From 2005 to 2007, it was the first wave of value investing.
From 2008 to 2015, it was the second wave of value investing.
From 2016 to 2021, it was the third wave of value investing.
The first two rounds of value investing cannot be called true value investing because the definition of value was not clear at that time.
More importantly, value investing did not break out of an independent trend.The period from 2016 to 2021 marks the third round of value investing, which is the first true starting point of value investing. Prior to this, value investing was about companies with better performance having a greater potential for growth compared to ordinary companies with average performance. However, from 2016 to 2021, it was entirely the companies with performance growth that carved out a relatively independent trend.
During this phase, many junk companies did not experience any significant rise, meaning there was no universal increase. In this phase, many large-cap stocks that were mistakenly hit after the 2016 circuit break began to surge, only stopping in 2021.
The first phase of the surge was the capital's herding towards high-quality core listed companies. The second phase was the rampant speculation by a large number of retail investors capitalizing on public funds.
The outcome was reaching the first peak of value investing under an absolutely high valuation bubble. From the second half of 2021 until the beginning of 2024, the entire market was on a downward trend. The first half of the decline was called a reversion to valuation.The latter half of the decline is referred to as a valuation trough.
In fact, the market had already significantly returned to a reasonable valuation range by the end of 2022 when it bottomed out, but it continued to dig a hole.
The main reason is to find the lowland of value.
Although value investment funds are long-term funds, they also pursue a return on investment ratio.
The value they pursue is not the quality of a listed company, but whether the stock price of the listed company is cheap enough.
So why is this time point the second starting point for value investment?
In fact, it is relatively simple, involving two aspects.
Firstly, the valuation is indeed quite cheap.
Valuation being cheap is easy to understand, for example, the price-to-earnings ratio of the CSI 300 is approaching the historical low.
The reasonable valuation we usually talk about refers to the conventional valuation percentile, which is the valuation percentile where the stock price is located for more than 50% of the time.When it comes to being considered cheap, it must at least be below the 20% historical range of valuation levels.
At present, it is indeed a cheap range, and it is also a truly reasonable point for capital to build positions.
Secondly, there is a clear differentiation in the market trend.
The real starting point of value investment mentioned before, mentioned an important point, which is the differentiated market trend.
That is, most of the stocks in the market have not shown a significant increase, but the blue-chip stocks and white-horse stocks of value investment have performed well.
This market trend, where small and medium-sized stocks fall sharply while blue-chip stocks rise steadily, is very similar to the market style after the circuit breaker in 2016.
In a capital market without obvious incremental entry, this kind of style switch is actually the biggest feature of capital grouping to find stocks that have been mistakenly killed.
Therefore, the second round of value investment bull market may be fully launched here.
However, the value investment that started in 2016 actually had a second re-entry in 2018, and it was not achieved at one stroke.
So, the second starting point does not represent that this direction will take off immediately, and it is more likely to be at the bottom of the market to absorb the chips.Value investing itself is still about timing; it's about choosing bargains, not chasing highs, and not buying expensive items.
If you truly understand value investing and can read the market's weather vane, your investment path in the coming years will undoubtedly be much smoother.
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