What should I do if I lose 35%? Jiang Cheng: Forget about the loss and forget about the return of the capital

Key takeaways:

1. We are not afraid of falling stock prices, but I am particularly looking forward to a bull market recently. It's because the market may need a bull market right now, and the potential return for value investors doesn't need to be expressed in terms of a bull market.

This round of value line water level is getting lower and lower, so we have nothing to worry about in terms of investment.

2. What is needed to make an investment is the facts, the facts are optimistic, and the emotions are pessimistic. So everyone pays more attention to the facts.

3. The current reality is that my friends, peers, and customers may be a little unable to hold on. At this time, if you turn the floating loss into a permanent loss of the cost, it may be a bit more than worth the loss.

4. The current valuation has fallen from 20 degrees at the beginning of the year to about 10 degrees, and if the (market valuation) in January 19 is zero, it may be about 10 degrees now.

5. There are already wallets on the market that can be picked up by bending down, and we can fill up the combination by picking up the wallet, so it is not difficult. Ten degrees, so you don't have to bet that it has to go back to zero.

6. The GDP growth rate and the demand growth rate of an industry have nothing to do with the return on investment of stocks, what we need to solve is the problem of return on investment of stocks.

On the afternoon of February 1, Jiang Cheng, fund manager of Zhongtai Asset Management, shared his investment views and views on the market in an online live broadcast.

Jiang Cheng has been in the industry for 18 years, and won the Golden Fund Award and the Golden Bull Award in 2016. The scale of the managed fund is 12.387 billion yuan, with an annualized return of 18.82%, and the total return of its representative product, Zhongtai Xingyuan Flexible Allocation Hybrid A, is 122.41% in 5 years.

Jiang Cheng pointed out that understanding the fundamentals of value investing is much more meaningful than copying the fund manager's homework than reading 100 books that teach you how to invest well, and the bull market will not bring any improvement to the potential rate of return for us (value investors).

Faced with the doubts of the people who lost more than 30%, he believes that it is more important to forget about losses and returns, and understand the ability of fund managers, and whether their excess returns come from strength or luck.

Jiang Cheng believes that the current market valuation is slightly higher than the end of 18 and the beginning of 19, about 10 degrees, and in June last year, Jiang Cheng also pointed out that the market temperature was about 20 degrees lower than that time.

However, he believes that indicators such as market valuation and stock-bond spread risk premium are just a description and cannot be used to predict, just as we cannot use valuation levels to predict the short-term performance of the stock market, and these indicators are more directional to the long term than to the short term.

For the aforementioned current valuation of the water temperature of 10 degrees, it may also fall to five degrees, fall to zero, and may even fall below zero, it may also rise.

In addition, Jiang Cheng is probably the most optimistic fund manager in the past six months, unlike many fund managers and economists who pay high attention to the macroeconomy and GDP, Jiang Cheng believes that the decline in GDP growth rate is only an analysis of the external conditions of stocks, and it is difficult to directly launch the return on investment of stocks or the operating quality of the molecular end.

In the process of slowing down, the profitability and long-term return ability of many industries and companies will even increase, while some industries and companies may decline.

In the live broadcast on January 31, he also raised the question of why investors are pessimistic and companies are not pessimistic? No one wants to admit that they lost money because of their poor level.

There are a lot of pessimistic arguments in the secondary market, which can't stand up to the scrutiny of the facts, but it's hard to reverse it, because that's human nature. When you lose money, your position has been decided, and you have to find a reason for your loss.

Many of the long-term pessimistic arguments ultimately point to concerns about a downturn in growth. Jiang Cheng believes that from a quantitative point of view, even if (GDP) slows down, we are one of the most dynamic economies.

Even if there is a decrease in speed, it has nothing to do with the long-term return on investment, the long-term return can only come from the level of long-term cash return on the asset, and the price at which we buy it today, the lower the price I buy, the higher the potential return.

As a value investor, Warren Buffett also teaches us that if you are a person who eats burgers every day, you certainly want burgers to be cheaper and cheaper.

The following is the wonderful content shared by Jiang Cheng compiled by the representative of this investment homework lesson (WeChat ID: touzizuoyeben) to share with you:

I'm not afraid of stock price drops, but the market has been expecting a bull market lately

Moderator: I can clearly feel that investors care about Boss Jiang. Recently, the net worth has fallen, do you have insomnia at night?

Jiang Cheng: It's not enough to lose sleep because of net worth, after all, I have done expectation management.

The most important thing is not the net worth, which always goes up and down. I remember that we also fell a lot in 2020, when it was the first round of epidemic panic. This round of value line water level is getting lower and lower, so we have nothing to worry about in terms of investment.

But many people will come to us for confidence and comfort, in fact, the truth and facts are very simple, but people's emotions are difficult to reverse.

As a fund manager, I don't have any emotional fluctuations and don't get distressed by a drop in my net worth. After about 18 years in the industry, as a value investor, Warren Buffett taught us that if you're a person who eats burgers every day, of course you want burgers to get cheaper and cheaper, right?

We're not afraid of stock prices falling, but I've been looking forward to a bull market lately. This is not because of the decline in net worth. In fact, it may be that the market needs a bull market right now.

A bull market is not a boost to our potential returns, and value investors do not need to express their potential returns in terms of bull markets.

However, many holders, channel partners, institutional customers, and financial institutions are actually facing some pressure at the business level and at the business level.

Now the facts are optimistic and the mood is pessimistic

When investing, pay more attention to the facts

A fund manager can be rational and not afraid of falling, but many clients may be afraid. Many people may turn the floating loss of net worth into a permanent loss of principal by selling it uncontrollably because of the decline. It's actually scary, and that's what worries me the most.

So we want to leave no stone unturned to convey some optimism. In fact, it is not confidence, the truth of optimism is obvious. But when people's emotions are in such a state of deterioration, everyone will ignore them.

Do you say that there is anxiety? I have anxiety, not directly from the decline of net worth, but with the decline of net worth and the decline of the stock market, many people will be tempted to do some actions that should not be done now.

So we recently wrote in the article, I hope everyone is in a better mood. Recently, a lot of people have come to me for chicken soup for the soul, and I said what chicken soup do you need to make an investment?

What you need to invest is facts, and the facts are optimistic, and the emotions are pessimistic. So everyone pays more attention to the facts.

Now turning the floating loss into a permanent loss may be a bit more than worth the loss

Moderator: Forget about the parts that make you emotionally down, remember that there are some tried and tested common sense in investing, this process should be difficult, how long did it take you to cultivate this ability in the past 18 years?

Jiang Cheng: This may vary from person to person. The large heart may have an innate endowment, but cognition can be strengthened.

After we accumulate more and more investment knowledge, in fact, your heart will be stronger than your innate heart, in fact, it is just continuous cultivation, just like everyone should not think that Boss Jiang is looking forward to the bull market now, is it fragile in his heart.

In fact, it's not that I'm psychologically fragile, but the reality now is that maybe my friends, peers, and customers as far as I can see may be a little unable to hold on.

I think that at this time, if you turn the floating loss into a permanent loss of the cost, it may be a bit more than worth the loss. This is the point of my anxiety.

Now the valuation of A-shares is slightly higher than that at the end of 18 and the beginning of 19.

At the beginning of 19 years it was 0 degrees, now it is 10 degrees

Moderator: Looking back on our Boss Jiang's career, we have experienced a lot of big fluctuations in the past 18 years.

There are two questions, the first question is what is the current valuation of the entire A-share market, and the second question is whether the valuation in the second half of '15 is not as good as it is now?

Jiang Cheng: I haven't compared it with the second half of '15, maybe it's about the same as now, and now it's probably a little higher than the end of '18 and the beginning of '19. I think the lowest point in the near future would be the end of '18 and the beginning of '19.

Moderator: Yes, it was 2440 points. But that's a point, not a valuation.

Jiang Cheng: The valuation is the same, and the current valuation has fallen from about 20 degrees at the beginning of the year to about 10 degrees (the valuation is measured in terms of water temperature).

If it was zero degrees in January 19, then it is about ten degrees now, it is only a gross estimate, which can only be used as a simple reference, relatively speaking, we can build a relatively heavy position combination, which is enough.

It's that there are already wallets on the market that can be picked up by bending down, and then we can fill up the combination by picking up the wallet, so it's not difficult. [It's] 10 degrees, so you don't have to bet that it has to go back to zero.

What to do if you lose 35%.

Moderator, the investor asked, the fund I bought for three years, lost 35%, and there is no sign of returning to the capital at present. Do you recommend continuing to boil, or do you want to move it?

As a citizen, he must have entrusted the task of making money to professional fund managers, but is this kind of critical attack due to the lack of ability of fund managers, or is it blamed on the market? I think he should still trust actively managed funds.

Jiang Cheng: The first one is to forget that you lost 35%. Second, we must forget about returning to our roots.

What is the potential rate of return for us in the future?

In fact, there are many ways to evaluate a person, although it is difficult, but what is the first thing we need to overcome? At this time, everyone should think about how to look at it and how to evaluate a fund.

If you forget about the 35% loss in the past three years, forget about its ranking in the past quarter, for example, our own ranking in the past quarter was very high, then what does this mean? This is not to judge my ability to be a fund manager, so what do you need to use?

Probably all the rhetoric, all the decisions of the last five years or even longer. The quarterly report of the public fund is available every quarter, and whether what you say and what you do in this fund is consistent. Then combined with the background environment of the market, evaluate where its excess returns come from, whether it is reliable or lucky, these are more important than our struggle with whether I have lost 35% or 25%, when I can return to my capital and whether you can return to your capital are more important than these questions.

Here's my advice, forget about (loss) 35%.

There is no point in losing faith

Moderator: Forget about losses, it's easier said than done. Do you also forget about your previous performance?

Jiang Cheng: I don't really need to forget it, because I don't use that thing as a reference.

The fund manager should always look forward, that is, stand in the present and let me reconstruct a portfolio, how I will construct the optimal portfolio in my mind, and what should be what it should look like at the current point in time.

It has nothing to do with his past performances, and it has nothing to do with our relative rankings of absolute returns over the past five years. This is something that must be overcome.

Moderator: So actually, there's no point in losing faith, is it?

Jiang Cheng: That's right.

Some risk premium indicators and valuation indicators can only judge the long-term

Moderator: Some investors asked, many people in the market use the spread between stocks and bonds to see the cost performance of equity assets.

At present, the PE of CSI 300 is about 8.7%, the 10-year treasury bond is 2.5%, and the "interest rate spread" of 6.2% is a new high in the past ten years.

(The data is subject to verification and we are not responsible for its accuracy as it is an investor's problem)

In fact, since September last year, this number has been at a relatively high position in history, but this spread continues to widen, and the market has not reversed.

Jiang Cheng: From the perspective of accurate timing, this figure reflects the risk appetite of stock market investors.

Risk appetite is low right now, and everyone is panicking right now, implying that the risk premium is very high. But this is just a description, and it can't be used as a prediction, just as we can't use valuation levels to predict the short-term performance of the stock market.

Just like last year, we have seen that this risk premium indicator is at a very high position, and it continues to get higher, so will it continue to get higher in the future?

There is this possibility, and it is not possible for me to use it to predict the inflection point, and it is not reliable in itself.

Just like we say that the temperature of the water level reflected in the current market valuation, the water temperature is about 10 degrees, but it can fall to 5 degrees, it can fall to 0 degrees, it may even fall below zero, it can also go up.

In short, the risk premium index of stocks and bonds and the valuation index of the market as a whole are more directional to the long-term than to the short-term, or more reliable. We have to think about this awareness.

There is no relationship between GDP growth and stock returns

Jiang Cheng: In the previous question, is there something different this time? This is a long-term judgment.

Then we have to sort out what situations and what factors cause this time to be different.

For example, has the economy entered the medium-high growth stage from the high-speed growth stage, and our GDP growth center has dropped from the original 7%-10% to 5%, what does it mean for investment?

This thing needs to be considered clearly, in the different places this time, there are a lot of different scary things circulating in the market, we must be able to identify it and classify it.

High-profile long-term structural changes need to be watched and short-term, one-off, cyclical shocks need to be ignored. In fact, there must be real long-term structural changes, that is, changes in growth rate, such as population aging, but please believe that these factors will not be directly linked to our investment returns.

We have said many times that the GDP growth rate, the demand growth rate of an industry, has nothing to do with the return on investment of stocks.

What we want to solve is the problem of return on investment in stocks.

So we need to answer the question of what will be the long-term profitability of the asset we bought in the future, how high will the long-term cash return be for us during its lifetime, that is, how much dividends, and whether the current purchase price is high or low.

The decline in the GDP growth rate is an external condition for analysis. However, it is difficult to directly deduce this external condition, the return on investment of the stock or the operating quality of the molecular end.

In fact, in the process of slowing down, the profitability and long-term return ability of many industries and companies will even increase. There are also some industries that may decline, and some companies that will decline.

What does this depend on? It depends on the long-term competition pattern of the industry in which it is located, where does the long-term competition pattern come from? It comes from whether the industry has the conditions to form, and the stable and soothing competitive situation that has been integrated under the leadership of the leader, which is actually the key point in our analysis of the long-term return ability of the molecular end.

Against the backdrop of a modest decline in growth rates, we are seeing some equity valuations that need to be reshaped. If you set a high value for the perpetual growth rate in its long-term hypothetical model, and now you need to revise it downward, then the valuation center may not be comparable in the past.

What is more of a reason for this? Some of the growth-oriented stocks. In fact, many investors have been worried about this issue for a long time.

Source: Investment Workbook Pro Author: Zhang Shupeng, Wang Li