There are actually two ways to achieve a steady profit in the stock market.
The first one, which is already very familiar to everyone, is the strategy of holding high dividend stocks and waiting for dividends.
Buy a high-performing coal stock, or a bank stock, or a power stock, and hold it for the long term.
Although there will be short-term fluctuations, in the long run, achieving an annualized return of 5-8% is still quite reliable.
As long as you extend the time period to more than 5 years, this strategy has basically never lost money.
Of course, this strategy requires not only a long-term patience but also the courage to enter boldly at the time node of high dividends.
For example, in the recent year of 2023, which is considered a bear market, the return of this direction exceeded 5%, and in just two months of 2024, the return of this strategy has reached 8%.
The worst case for this strategy is probably a 3-5 year horizontal fluctuation, with no profit.
As long as you don't buy high at a time when the dividend rate is low and choose investment targets with relatively stable performance, there will be no problem.
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The second one, which is also the focus of today's sharing, is the strategy of combining index funds and position management.To devise a consistently profitable strategy, there are three essential conditions that are indispensable.
Condition 1: No risk of delisting.
The greatest risk in investing in stocks is not about buying at a high price or too early, but rather the risk associated with performance.
Many stocks, as long as they do not have the risk of a performance bombshell, will fluctuate within a reasonable value range.
Even if you buy at a high price, as long as you are willing to wait or reasonably reposition your holdings, there is an opportunity to turn things around.
The only situation where there is no chance of recovery is when the performance bombs, leading to delisting.
Never say that large enterprises have no risks; if you bought China National Petroleum Corporation (CNPC) at a high price, you could still be trapped.
It's not because the buying price was high, but because CNPC's performance changed, and it can't return to its original high position.
Buying CNPC is not the worst case, because at least by doing high sell and low buy, there is still no risk of delisting, and it is possible to achieve profit from waves, compensating for the loss of buying at a high price at that time.
However, if you bought a stock like LeEco, which eventually delisted, all the repositioning along the way would be a failed trading decision.Since individual stocks carry the risk of delisting and the possibility of a significant decline in performance, there is no such thing as a truly guaranteed profit.
Condition 2: You must understand position management.
To ensure a guaranteed profit, it is essential to combine it with position management.
Without position management, if you buy at the historical peak, making money will always have nothing to do with you.
Always have a way to control your trading costs within the middle and lower range of average fluctuations.
That is, if the stock price fluctuates between 10 and 50, try to keep your cost within 30, the lower the better the probability of making money.
The core of position management is to avoid being fully invested at will, because you don't know if there will be a lower buying price and opportunity.
The advantage of position management is that you always have ammunition in hand, which allows you to try to lower the holding price and ensure profitability in fluctuations.
However, there is a disadvantage to position management, which is that the overall rate of return is not very high.
Most investors who manage their positions generally fluctuate between 30-70%, and it is difficult to be fully invested or empty.If the average position is 50%, then even with a 20% return rate, it will ultimately be diluted to 10%.
If the central position of the price cannot be accurately determined, the actual return rate may be lower than 10%.
Therefore, behind this strategy, it is essential to trade high-volatility varieties, not low-volatility ones.
Condition 3: There must be criteria for buying and selling points.
The last issue, which is also the key core, is the criteria for buying and selling points.
Without criteria for buying and selling points, everything is nonsense.
Grid trading is actually a relatively suitable trading method for this strategy.
That is to say, the price is divided into a grid, and it is gradually sold during the rise and gradually bought during the fall.
But there will definitely be a problem with this strategy, which is the middle position on this journey, how much it is.
Below how much is gradually bought, and above how much is gradually sold.The usual reasonable approach is to use the valuation center multiplied by 0.8 as the standard for buying, and the valuation center multiplied by 1.1 as the standard for selling.
For example, if an industry has an average P/E ratio of 30 times.
Then the buying point is often below 24 times, and the selling point is above 33 times.
This standard does not have an absolute reasonable value, only a relative range derived from experience, which everyone can adjust themselves.
Those who meet the above three criteria are actually investing in index funds, and specifically in broad-based index funds.
Because industry indices may go downhill, broad-based indices basically only fluctuate within a certain range.
Many people do not understand what a broad-based index is.
It is actually an index similar to the Shanghai Stock Exchange Index.
If you take 3000 points as the axis, high sell and low buy the Shanghai Stock Exchange Index, achieving an annualized return of 10-15% is almost a sure thing.
Originally, there was no such investment method, but after the launch of the Shanghai Stock Exchange Index ETF in 2011, it has long been possible to play like this.For the Shanghai Composite Index, which will never be delisted, it is much easier to sell high and buy low than to pick individual stocks.
Moreover, there is a characteristic that the longer the cycle below 3000 points, the higher the actual return rate.
For example, from 2011 to 2014, the Shanghai Composite Index was long-term below 3000 points, and finally rose to 5178 points.
From 2015 to 2016, the Shanghai Composite Index was temporarily below 3000 points, and the time was not long, and later only rose to 3587.
From 2018 to 2019, the Shanghai Composite Index was again temporarily below 3000 points, and later in 2021 it rose to 3731.
In 2022, there were two short-term periods below 3000 points, and the index rebounded to 3424 and 3418.
In 2024, the index temporarily fell to 2635 points, so it is expected to rebound back above 3000 points.
Although the fluctuation of the Shanghai Composite Index is already relatively small among all broad-based indices, it is still very common to have a small wave of more than 15% and a large wave of more than 30%.
Among the broad-based indices, the larger the amplitude, the higher the return rate for this investment method will be.Here is a simple summary of the article in English:
To achieve consistent profits in stock investing, there are several key factors to consider:
1. Selection of investment targets
2. Position management
3. Criteria for buying and selling
4. Time cost
Your rate of return depends on the level of volatility, but also on the time cost associated with the duration of the investment cycle. If market fluctuations continue to narrow and do not meet the criteria for buying and selling, the return on investment per unit of time will actually decrease.
If you invest for 2-3 years and achieve a return of 15%, the actual annualized return may only be around 5-8%. In this case, the difference between this and diversifying into some high-dividend individual stocks is not significant.
If the return rate is only 3-5%, it may only be comparable to the return rate of bonds, and the value is lower.
Consistent profits in investing also have standards. Different return requirements correspond to strategies that need to be fine-tuned accordingly.Rationally speaking, investors who can achieve a stable return of 6-8% have already outperformed more than 90% of people, so there is no need to be overly greedy.
After all, the proportion of market investment returns that can exceed 10%, 15%, and 20% is increasingly low.
Prioritizing risk over returns is the ultimate goal that retail investors should aim for in the final stage of stock trading.
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