Is there still any point in long-term investment?

Today, A-shares fell again, with the ChiNext index falling more than 1%, and more than 4,000 stocks falling.

It's time to find out why again. On the one hand, the Beijing Stock Exchange continued to be strong today, the Beijing Stock Exchange 50 Index rose 6.50%, and many funds chose to go to the Beijing Stock Exchange to dig gold, resulting in the continued shrinkage of the main board turnover, and the turnover of the two cities today was only 813.3 billion yuan, plus the net outflow of northbound funds was 6.196 billion yuan, and the market sentiment was not high.

(Image source: Oriental Fortune APP, statistics as of 2023/11/24, no investment recommendation)

On the other hand, today, the auto sector fell first, BYD fell 5.24%, a new low in one and a half years, and CATL fell 1.52%, restricting the performance of the index. According to channel sources, this price reduction involves a variety of models in the BYD Dynasty series, with a maximum discount of 15,000 yuan.

(Image source: Oriental Fortune APP, statistics as of 2023/11/24, no investment recommendation)

Bank of China Securities pointed out that auto sales in October increased year-on-year, but there was a slight decline month-on-month. This was mainly due to the recovery in demand and promotional policies. However, affected by the price war of a large number of manufacturers, the profit growth rate of the industry is under pressure in the short term.

In the blink of an eye, November is already late. It's the closing season of another year, and after more than two years of continuous adjustments, the Shanghai Composite Index is still hovering around 3,000 points. Even in the face of the ensuing good assists, the market has not come out of the expected surge, and investors' helplessness and confusion can be imagined.

A small partner sent a private message to the editor: I've been waiting until I lose confidence, how long do you mean holding it for a long time?

The market has always been like this, and investors' confidence will always follow the stock price, from the pride at the top to the bottom of the trough, and the difficult and long downward cycle will always breed countless pessimism.

So, is long-termism really working? You may need to know this.

01 

Correct understanding of long-termism,

Need for some "second layer thinking" in investing

The participants in the capital market are a group, and most investors have similar views and similar operations, which ultimately affect the trend of the market. Although every investor expects to earn more than others, if you "follow the crowd" and are no different from the general public, it is obvious that you will not be able to beat the market.

It is precisely for this reason that investment guru Howard Marx emphasized in the book "The Most Important Things of Investment" that investors should have a "second layer of thinking" that is different from the market in order to surpass the average and cast excellence.

What is "second-level thinking"? It is to go further than conventional thinking, to think backwards and make independent judgments.

For example, in the face of the theme rotation and ups and downs of A-shares:

The first level of thinking will say that A-shares are full of thematic investment, and fundamental analysis and value investment are useless;

However, the second level of thinking can think that it is precisely because of the serious pricing errors caused by possible speculation and irrationality in the short term, that value investing is expected to achieve excess returns in the long run.

The first level of thinking will say that A-shares always go up and down, so "no one is winning this game";

But the second level of thinking can think that the ups and downs are always accompanied by each other, and the over-falling rebound under the mean reversion alone can make people stunned, so the average annualized increase in the bull market since the release of the Shanghai Index can reach 126% (source: AVIC Securities), the so-called tuyere is often attributed after the fact, and the journey of a thousand miles begins with the most simple "cheap and clear", such as the GEM in 2019 and this year's TMT market.

Standing at the moment, facing the numbness and hesitation of the market for the good:

The first level of thinking will be full of pessimism, no one can be young forever, only the Shanghai Composite Index can be 3,000 points forever;

But the second level of thinking knows that, firstly, "ignoring the positives" has always been a footnote to the end of the decline, and secondly, although the Shanghai Composite Index has repeatedly tug-of-war around 3,000 points, it does not mean that long-termism cannot obtain the desired returns.

Since February 16, 2007, when the Shanghai Composite Index exceeded 3,000 points for the first time, the index of partial stock mixed funds has risen by 223.5%, and the index of common equity funds has risen by 284.3%.

Even fixed income funds with lower risk returns than equity products have achieved good returns under the premise of controlling volatility drawdowns in the "long-term" of the past 16 years, and the partial debt hybrid fund index has risen by 168.7%.

Source: Choice, 2007.02.16~2023.11.17, the historical return of the index is not indicative of future performance and does not represent investment advice.

Investors with a "second layer of thinking" will understand that after each full correction, a good asset can eventually bounce back, and always higher than the previous high, and that every darkest moment of despair is just a small wave in history. Don't look at the short-term with a magnifying glass, you should use a telescope to focus on the bigger picture.

Source: Choice, Partial Equity Mixed Index, the range of the same period is 2003-12-31. Past performance of the Index is not indicative of its future performance.

02 

Long-termism is not about making money all the time,

It's about helping you make money with a high probability

The ancient Greek philosopher Socrates famously said, "I know only one thing, and that is that I know nothing." ”

There is no shortage of similar "paradoxes" in investing. Joel Greenblatt, founder of Gotan Capital, proposed:

"First, value investing is effective, second, value investing is not effective every year, and second, it is the guarantee of the first point.

Because value investing doesn't work every year, it works for the long term. If it works every year, it can't continue to work in the future. ”

The reason is very simple, in the turbulent capital market, if there is an investment strategy that can make steady profits for a long time, everyone will rush into arbitrage, and all rush is equal to not rushing, and overcrowding will make the original excess returns disappear.

In other words, it is precisely because of the volatility and uncertainty that the long-term effectiveness of value investing strategies is laid.

Therefore, we need to understand that long-termism and value investing are not always profitable, and the annualized return of the index of the partial equity hybrid fund is as high as 12% since the base day, but it does not mean that it can rise steadily by 12% every year. (Source: Choice, Past performance of the Index as of 17.11.2022 is not indicative of future performance.) ）

The return on investment has always been "non-linear", and we always get 80% of the return 20% of the time. And the dullness, gloom and even frustration that needs to be experienced in this process is the necessary consideration for waiting for the strategy to return to effectiveness and stick to value.

But the good news is that long-termism does help us make a high probability of making money. The editor has compiled about 19 years of data since 2004 and backtested the index of the mixed fund index at any point in time.

The proportion of the holding period VS positive return of the partial equity hybrid fund

Data source: Choice, partial stock hybrid fund index code (885001.WI), statistical interval is 2004.1.1-2022.12.31. Past estimates are not indicative of future earnings.

The results show that the longer the investor holds the fund, the higher the winning rate of the fund investment. If you hold it for 5 years or more, the proportion of positive returns will exceed 90%, and if you can hold it for 8 years or more, you will get a positive return ratio of up to 100%.

INTERVIEWER So, how long do we mean holding for the long term?

Generally speaking, when we talk about long-term, we usually mean 3-5 years. First, this echoes the bull-bear conversion law of A-shares, and second, it is also the holding period with a higher win rate found in backtesting.

But the editor also has some understanding of this. 3-5 years is a statistically derived figure, in fact, for individuals, "long-term" is actually the completion of a round of the cycle of assets held from "undervalued by the market" to "value return, the return of the king".

If you buy at a place where no one cares, this holding period is naturally expected to be shortened, but if you enter at a higher point, or miss the take profit when the crowd is buzzing, then you might as well calm down and wait patiently for the start of a new cycle.

Back to the present, the 3-year rolling annualized return of the partial equity hybrid base has gradually touched the lower edge, and the current value is -6.08%, which is lower than the 96% of the time in the past 17 years. (Data source: Choice, as of 2023-10-31)

Data source: Choice, the calculation uses the Wind Partial Stock Mixed Fund Index (885001.WI), the base date of the Wind Partial Stock Mixed Fund Index is 2003-12-31, and the 3-year rolling annualized return data starts from 2007, as of 2023-10-31, the past data does not predict future performance and does not make investment recommendations.

In the past, even in the 12 consecutive years of decline and the 18 years of unilateral decline, no matter how difficult the period, the rolling annualized return of the partial equity hybrid fund for three years has never fallen below -10%.

Now, assuming that the Wind Partial Equity Mixed Fund Index maintains its current point and does not rise or fall, by mid-December this year, the three-year rolling annualized return will be less than -10%. (Data source: Choice, statistics on 2023-10-31)

If historical experience is valid, then this time, there is a high probability that it is really coming to the end. The signal light for a new cycle has been lit again, and the "return of value" of long-termism may not be far away.

Long-termism, in many cases, will be regarded as a bowl of "chicken soup" that has "drunk" too much, but it is a more effective investment method summed up by countless investment masters who have gone through the ups and downs of the capital market with their own experience.

In today's ups and downs of the market, Xiaobian once again picked up this bowl of "chicken soup", hoping to give everyone more courage and faith. Hold on, and when the dawn breaks through the darkness before dawn, it will be a different world.

Speaking of this today, I wish you all smooth investment and financial management~

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The above views are from relevant institutions and do not represent the views of Tian Tian Fund, and do not guarantee the accuracy and completeness of the views. Yield data is for reference only, past performance and trend style are not indicative of future performance and do not constitute investment advice. The relevant views quoted are from relevant institutions or public media channels, and do not represent the views of Tian Tian Fund. Tian Tian Fund does not make any guarantee for the accuracy and completeness of the views, and investors operate accordingly at their own risk. The market is risky, regular investment is risky, and investment needs to be cautious. The above content is for reference only, the article involves individual stocks, does not constitute stock recommendations and investment advice, the stock market is volatile, please operate cautiously before purchasing. The mainland fund has been operating for a short period of time and does not reflect all stages of the development of the stock market. The fund manager does not guarantee the profitability and minimum return of the fund, and the performance of other funds under its management does not constitute a guarantee of the performance of the fund. The past performance of the fund and its net value are not indicative of future performance, and the full performance can be found on the product details page. There is a risk of income fluctuation in fund products, and investors should agree to the principle of "buyer bears their own responsibility" when making fund investment decisions, and the investment risks and losses caused by changes in the operation status of the fund and the net value of the fund shall be borne by the fund investors after making the fund investment decision. Investors should carefully read the Fund Contract, Prospectus and other legal documents of the fund to confirm that they know and understand the product features and related risks, and have the corresponding risk tolerance. The market is risky and investors should be cautious.

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