Recently, a number of stocks such as Yangtze River Power, Nanjing-Shanghai Expressway and CNOOC have hit record highs in faltering.
Even slow bull stocks like Yangtze Power, which have been hitting new highs for 20 years, have recorded monthly declines of more than 5% on five occasions in the past three years. If investors lack an idea of how bumpy the investment will be, a poor investment experience is likely to wash investors out.
In fact, investing is counter-intuitive. In the bottom area of the stock market, Mr. Market is cold and depressed, the already cheap stock price will be further cheaper, the rise seems to be far away, investors can't help but wait and see, but at this time it is precisely the sowing area, just like the investors who went long in 2016 and 2018 blue chip stocks, and in the following years, they have received rich market rewards, and in the top area of the stock market where everyone is hypnotized by stock prices, investors carnival, everyone seems to have a bumper harvest, the stock market just enters the high-risk and low-return range, just like the investors who entered the market in the first half of 2007 and 2015, which is an important reason why investors who entered the market at the beginning of 2021 have been in tears in the past three years。
Investing is about making money that can beat inflation in the long run, not a good investment experience. Even if the Dow Jones has returned 11% annualized over the past 70 years, investors will not have a good experience because the retracement of more than 5% of the time takes up most of the time, and people are either regretting why they didn't sell the last high, or worrying about when the next high will come.
Successful investments cannot empathize with the market, especially in times of extreme pessimism, because only in such moments is there limited downside risk and considerable upside gains. As the late Yale Chief Investment Officer David Swenson put it, it was uncomfortable to be in a different position, and to suffer until the final victory came.
Stumbling to a new high
Yangtze Power hit a record high on December 28, 2023. Since November 18, 2003, Yangtze Power has risen nearly 20 times in the past 20 years, which is a typical slow bull stock, but the volatility of Yangtze Power is also enough to scare away investors who follow the trend and buy.
Since 2021, Yangtze Power has risen by nearly 40% in three years, far outperforming the market. However, there have been three times in the past three years when the stock price has retraced more than 10%, with a retracement of more than 12.7% from March to May 2021, more than 13% from October to November 2021, and nearly 20% from July to November 2022.
In the past three years, Yangtze Power has seen 344 trading days up and 353 trading days down. From a psychological point of view, the painful effect of a decline is three times greater than the happiness effect of a rise, so although Yangtze Power has risen by 40% in the past three years, investors feel far more pain than happiness if they frequently look at the stock price.
The Nanjing-Shanghai Expressway hit a record high last month, with an increase of 5.27 times and an annualized return of 8.3% since its listing in 2001. Over the past three years, the Ninghu Expressway has risen by 30%, and the stock's maximum drawdown in the past three years has been 25%. As a utility stock, the fundamentals of the Ninghu Expressway are relatively transparent and stable, the dividend yield is clear and relatively easy to predict, and the intrinsic value is relatively stable, but the stock can also experience emotional sell-offs during market downturns. However, in the long run, the stock price will eventually move closer to the company's fundamentals.
Xingqi Ophthalmology hit an all-time high last month, and the stock has risen 50 times since its listing on December 8, 2016. The stock has also gained 174% over the past three years, but the maximum drawdown has also been as high as 59%. The stock peaked at $174.81 in June 2022, but fell to $83.47 in October 2022.
Kweichow Moutai, a long-term bull stock, has risen 8 times since 2016, but the drawdown of more than 30% has occurred 3 times. In June 2008, Kweichow Moutai once reached 803 yuan, but the stock price fell all the way, and in October, it accelerated the decline, and once fell to a low of 509 yuan in November 2018, with a maximum drawdown of 37%; in February 2021, Kweichow Moutai once touched a high of 2,627 yuan, and in August 2021, the lowest probed to 1,525 yuan, with a drawdown of 42%;From June to October 2022, the maximum drawdown was 37%.
Volatility is the truth of the stock market
As greed and fear periodically dominate the market, the stock market is always accompanied by quite sharp fluctuations, and the corresponding P/E ratio may fall in the range of 8-9 times when the market is pessimistic, and the corresponding P/E ratio will be greater than 25 times when the market is optimistic. Even if the fundamentals of listed companies are steadily rising, the up-and-down fluctuations from valuations can easily lead to stock prices being cut in half.
A stock price investment boss Zhang Yao once said: "Volatility is the nature of the market, thousands of various participants, how can there be no fluctuations, it is volatility that creates a source of profit, so that all types of investors can find reasons to buy and sell, so that value investors can find a price worth the money." ”
Duan Yongping holds almost a single position in the U.S. stock market, Apple, but he thinks that no one is probably happier than him to see Apple's stock price fall. "Investors can only understand if they think of the company as a private company, without a change in the stock price, but the vast majority of people can't do that. Objectively speaking, if there is no way to view a company as a private company, most investors will end up losing money. Duan Yongping once said. In the past 10 years, Duan Yongping has earned about 10 times the income from Apple, and has also experienced 4 crashes in 10 years.
Investing in the stock market requires a certain amount of tolerance. Investors need to be anticipating stock price fluctuations, even wild swings, and as John Borg, founder of Vanguard Fund, said, "If you can't stand the heat, you should stay out of the kitchen".
This is a real case told by the famous Wall Street investor Morgan Hauser in "The Psychology of Money", and he cites the example of the Dow Jones index to give a mathematical explanation for this phenomenon.
Image Credit: Morgan Hauser, The Psychology of Money
The grey range in the chart represents a period when the current price is at least 5% below the previous all-time high, and this gray phase is the time when you will be unhappy - because, during this "gray" time, you will either regret why you did not sell the previous high, or you are anxious about when the next high will come. There is no need for accurate statistics, and we can see with the naked eye that the gray "unhappy" period has occupied most of the time in the past 70 years.
Great investors are boiled out, and many investors who have passed the test of time have endured a lot of market pressure. Charlie Munger once said, "Our generation, this group of people who do value investing, none of them have boiled out." Stick to it, and you don't even need to be smart. ”
Investing entails distinguishing between the share price and the intrinsic value of the stock. If you keep an eye on the short-term stock price, investors will not only have a bad experience, but will likely be fooled by the market, buy high and sell low, and run in the wrong direction; if you regard investment as "the stock price is what you pay, and the value is what you get", keep an eye on the relatively stable intrinsic value, ignore the stock price that jumps up and down, or use the irrational market to buy low and sell high, investors can make long-term money and avoid resonating with market sentiment in order to form good investment results.
(Originally titled "A-shares continue to be sluggish, but these stocks hit new highs!What are the commonalities? Great investments are boiled out!")