Zhang Juying, the author of "Slowly Getting Rich", is a well-known independent investor and a big V on the Xueqiu platform, and his other work "10 Catch-Rules for Amateur Investors" is also favored by the majority of investors and has become an important material for Xueqiu investment education. The book "Slowly Getting Rich" is divided into five parts: thoughts, choices, valuation, holdings, and cultivation. The thinking chapter deeply analyzes the key issues of investment mentality and guides investors to establish a correct investment concept; the selection chapter focuses on solving the problem of selecting investment objects and helping investors find the target worthy of investment; the valuation chapter conducts in-depth discussions on the evaluation of investment objects so that investors can accurately evaluate the investment value; the holding chapter emphasizes the importance of investment discipline to keep investors firm in fluctuations; and the cultivation chapter focuses on investment mindset to improve investors' inner cultivation and make them more relaxed on the investment road. Through this book, we can not only learn the basic knowledge and skills of investment, but also feel the author's deep understanding and unique insights on investment.
。 This view is not groundless, but supported by solid data. In his classic book "The Long-term Magic of the Stock Market", Professor Siegel reveals the long-term real returns of various financial assets. According to the data, after deducting the impact of inflation, the compound annual returns of various financial assets are: 6.6% for stocks, 3.6% for long-term treasury bonds, 2.7% for short-term treasury bonds, 0.7% for gold, and -1.4% for US dollars. This contrast highlights the superior performance of equities as a long-term investment vehicle.
However, it is worth noting that the long-term term referred to here did not happen overnight, but spanned multiple historical stages and economic cycles. In the first stage, the real annualized return on equities remained stable at 6.7% for 68 years, from 1802 to 1870, in the 54 years from 1871 to 1925, in the second period, it was 6.6%, and in the 86 years from 1926 to 2012, the real annualized return on equities reached 6.4%, despite the Great Depression, postwar expansion, the tech bubble, and the financial crisis of '08. This speaks volumes about the stock's long-term stability and high yields.
The authors cite Professor Siegel's study of financial assets in 19 countries from 1900 to 2012, which shows that stocks still have the highest annualized return of 5.4%, which is not much different from the 6.2% in the United States. This is further proof of equities' status as a global premium investment vehicle.
From the perspective of the representative Wind All A Index, from 1,000 points at the end of 1999 to 3,245 points in 2018, it has risen by 224.5% in just 19 years, with an annualized return of 6.39%. If adjusted for the change in the price-to-earnings ratio, the adjusted compound annual return reaches 14.22%. This is still after deducting inflation, which is enough to show that the performance of the A-share market is not inferior to the stock markets of other countries. In summary, both globally and in terms of the specific performance of China's A-share market, equities have demonstrated their excellent potential and value as a long-term investment vehicle. Therefore, it is undoubtedly a wise choice for individuals and families to include stocks as an important part of asset allocation.
Some people may wonder if the return on investing in real estate in China is higher than that of stocks, so let's explore this question in detail. In the 27 years from 1990 to 2017, housing prices grew at a compound annual growth rate of 9% in Beijing and 13% in Shanghai. Although such a growth rate is already quite impressive, it is still slightly inferior to the stock market. The Wind All A Index has a compound annual return of 14.22% after considering the change in price-earnings ratio, which means that in the long term, the stock index can still outpace the appreciation rate of real estate.
So, let's take a look at what the situation is in the United States. In his book Irrational Exuberance, renowned scholar Professor Robert Shearer provides an in-depth comparison of the S&P index and real estate data from 1890 to 2017. If $1 was invested in real estate in 1890, the value of that investment would have grown to $52 by 2017. And if the same $1 were invested in the S&P index, its value would grow to an astonishing $80,723, which is almost 1,552 times the return on real estate! Further analysis shows that the nominal return on property is only 3.17%, while the compound annual return of the S&P is as high as 9.3%, which is almost three times the return on real estate.
So, looking at a longer historical period, the earnings of stocks have far outpaced those of real estate. This rule applies not only in the United States, but also in China. For investors who are looking for long-term steady growth, stocks are indeed an investment option worth considering.
Having said that, some people may still not believe this, so we might as well delve into the historical data of the A-share market. Taking the "old eight shares" at the beginning of the A-share listing as an example, their average annualized rate of return is as high as 15%. Imagine if we combined these eight stocks and doubled our assets in just five years, wouldn't that be an exciting return? For example, in the 22 years from 1996 to 2018, the stock price of Gree Electric has risen by an astonishing 315 times. Another example is Kweichow Moutai, whose share price has also risen more than 100 times in the 17 years from its listing in 2001 to 2018. These staggering figures are all retrospectively verified by historical data, and they are by no means groundless. Therefore, whether it is from a global scale or focusing on the A-share market, in the long run, the returns of stocks far outperform other types of assets. This conclusionSmith, in his classic book "Long-Term Investing with Common Stocks", has indeed delved into and demonstrated the superior performance of stocks as a long-term investment tool.
So, what is the secret of the long-term high returns of equity assets? The author points out that the core of this is that companies can use their earnings to reinvest, that is, dividends are reinvested, so as to continuously increase the intrinsic value of enterprises. If we look at all listed companies in China as one large family business, then in the long run, the creativity and profitability of this family business will continue to rise, which in turn will drive its representative index to a spiraling trend.
This phenomenon is the most significant economic feature of human society after it has moved from the agricultural era to the industrial age and the market economy. In other words, the long-term development of the stock market is rooted in economic development, which in turn depends on technological innovation. As long as the country is prosperous, the stock market will bring great returns in the long run.
From the grand perspective of the development of human civilization, there is an obvious upper limit to the total economic volume created by agricultural civilization, however, after entering the industrial age, economic development has shown the characteristics of continuity, accumulation and compound interest. This development model provides a solid foundation and fertile soil for modern finance. Just as the discovery of fire has brought about great progress, the stock market is undoubtedly an outstanding invention of mankind.
With the reform and opening up of the mainland and the vigorous development of the economy, the financial market has also ushered in unprecedented development and prosperity. It is foreseeable that in the years to come, China's stock market will continue to play an important role in economic growth, bringing long-term stable returns to investors.
The author believes that even we ordinary people can pursue financial freedom through legitimate means and hard work. Equity investment, as well as various investment products, including funds, is such a feasible path. As demonstrated by Munger the Wise, he achieved remarkable achievements with his integrity and kindness, and with his wisdom. This sets an example for us ordinary people, and it is worth mentioning that the author has personally practiced and proven that this investment path is completely feasible. This means that as long as we are willing to put in the effort and acquire the necessary knowledge and skills, we can move steadily on this path and realize our dreams of wealth.
However, making a profit in the stock market does not mean that every investor will be able to make a profit. The author points out that there has always been a saying in the stock market that "seven losses, two draws and one gain" has been verified in statistics over the years. Although some of the reasons can be attributed to the immaturity of the industry, such as the governance of listed companies, information disclosure and the integrity of major shareholders, investors themselves need to look at the problem from multiple perspectives.
The author believes that the root of the problem lies in the incorrect investment philosophy of investors. Many investors pursue short-term interests and hope to make quick profits, which is manifested in frequent irrational operations and speculative behaviors in investment methods, such as frequent trading, chasing up and down, etc. This short-sighted approach to investing often results in investors suffering losses in market volatility.
Therefore, when participating in the stock market, investors should not only pay attention to the objective factors of the market, but also examine their own investment philosophy and behavior. Establishing a correct investment concept and adopting a rational investment strategy is the key for investors to make steady profits in the stock market. So the stock market is a very interesting place, and he will make smart people stupid, even to the point that they can't think.
Subsequently, the author conducted an in-depth analysis of several major factions in the current investment market. Among them, the Graham school is particularly noteworthy. At the heart of Graim's investment philosophy is to buy below the company's liquidation value and wait for the market to recognize its true value before selling, so as to achieve a profit. This investment strategy is often seen as a distressed investment, in which a company is in trouble and reaps the rewards when the company's performance improves.
Warren Buffett used this strategy in his early years when he bought Berkshire Textile Mills. Warren Buffett himself also refers to Graim's investment method as a "cigarette butt-picking" strategy. He had envisioned that even if he sold all of the company's assets, such as tables, chairs, benches, etc., their value should be higher than the purchase price. However, this was not the case, and the value of these assets later shrank significantly, giving Buffett a profound lesson.
The second school is the growth stock investment school advocated by Philip Fisher. Warren Buffett once admitted that 85% of his own investment strategy was influenced by Graham, while the remaining 15% was derived from Fisher's wisdom. Fisher's investment philosophy focuses on the growth of the company. He knows that great companies are rare, so once he finds an investment opportunity with growth potential, such as those outstanding companies that are temporarily overlooked by the market, he will not hesitate to concentrate his money on investment and hold it for a long time, maybe 10, 20, 30 years or more. Warren Buffett later used this strategy when he bought Joyce candy.
The third genre we call the "Munger School". In the temple of value investing, Warren Buffett is undoubtedly a master. The essence of his investment philosophy is to buy great companies at reasonable prices, but at the same time not to exclude buying underperforming companies at low prices. Warren Buffett's investment philosophy is deep and broad, and we'll explore it in more detail in a later chapter.
When it comes to value investing, another figure that has to be mentioned is Munger. Munger is known as a walking library, which shows the depth of his knowledge. His assessment of Graham is also quite pertinent, believing that Graham is best known for his discourse on "Mr. Market", and he is good at breaking through and developing investment ideas on the basis of inheritance. Many of Buffett's later investment decisions were also infused with Munger's wisdom.
Of course, there are many great investors or schools in the market, such as Peter Lynch, who have left their mark on the investment world. But we don't need to dwell too much on the debate about the various genres. In this book, we will take Warren Buffett's investment ideas as an example to analyze the concept of value investing in depth. First of all, Warren Buffett emphasizes investing with a buy-equity mentality, that is, buying stocks as an investment in the company and becoming part of its business. In short, it is to treat the secondary market prudently with the mentality of investing in the primary market. This kind of equity thinking is like a beacon that guides Buffett's investment path.
Second, Warren Buffett is good at taking advantage of the market. He likened Mr. Market to a mentally ill man with manic depression, offering ever-changing prices on a daily basis and asking investors if they would be willing to buy or sell shares. Sometimes, Mr. Market's quotes coincide with the actual development and prospects of the business, but more often than not, his mood is extremely volatile, resulting in prices that are too high or too low. Therefore, we should be good at taking advantage of Mr. Market's mistakes and not blindly following his emotions.
Third, Warren Buffett emphasized the importance of the margin of safety, that is, buying cheaply. The stock market is like a supermarket, and because of Mr. Market, there will be opportunities for discounts and promotions from time to time, which provides us with the possibility of picking up leaks. The reason why investing is not profitable is often because it is too expensive to buy or sell too early. If you buy cheaply, you can reduce the number of mistakes by at least half.
Fourth, both Buffett and Munger emphasize the concept of a circle of competence, that is, only do what they are familiar with. Just like choosing a partner, if you don't know anything about a person, do you dare to enter into marriage with him easily?
As ordinary investors, we may not be able to match the amount of money we have with institutional investors, but they have absolute control over their funds. However, this does not mean that we do not have an advantage in investing. The key is whether we can practice the investment philosophy like a master, and not be limited by the size of the capital. Investing seems simple, but in fact the threshold is quite high. If you don't have reverence for your investment, you'll lose money sooner or later. There is still a long distance between knowledge and action, not to mention that many people do not even have basic investment knowledge. Therefore, we should first make up for our own knowledge shortcomings, rather than blindly investing in heavy positions.
That's all for today's sharing, and the next issue will continue to read "Slowly Getting Rich" Thought Chapter 2 for you - how to achieve slow wealth, and look forward to seeing you next time.