1. Being in this mountain
When I was a newbie, I liked to ask old stockholders: What does a bull market/bear mayor look like?
One of the most common responses is: you'll know then.
After all these years of observation, I have some doubts about this answer, I think what the bull market/bear mayor looks like, "then" and "then" you don't know - you often don't know until "later".
A bull and bear market is an after-the-fact evaluation, not an ex-post evaluation.
When you're in a bull/bear market, even if it's already unfolding, it's hard to notice that you're in a bull and bear market, and you just feel like "something is a little different" until it's more than halfway or two-thirds of the way unfolded, or even fully unfolded.
As the saying goes, "I don't know the true face of Lushan, only because I am in this mountain." ”
This is what I have observed in recent years: it is very difficult for people to perceive cycles.
People are good at evaluating the cycle after the fact, not good at feeling the cycle during the event, and even more clumsy at predicting the cycle in advance.
The last three years have provided an excellent case in which a bear market unfolds is not perceived.
When we look back at 2021~2023, we will find that this is a significant bear market, and the closer to the end (late 2023~early 2024), the stronger the bear market will be.
In the past three years, we have witnessed the mood of the crowd turn from hot to cold, from euphoria to lamentation, with groups of investors liquidating and leaving the market, and even famous people falling from the altar, which once again confirms Warren Buffett's famous saying: You don't know who is swimming naked until the tide goes out.
But notice that this bear market looks so clear because we're looking in the rearview mirror, because we're in 2024, but people in 2021, 2022 and 2023 – it's hard for them to get that kind of clarity and it's hard for them to be sure that this is a bear market.
You might as well collect the famous stock market forecasts and annual outlooks of the past three years, and you will find that every year there are people shouting "the bull is coming" and "the ten-year bull market", and there are reasonable and conclusive words, even if the index is gradually declining, there is an endless stream of bullish people.
In January 2021, I heard four college students in the café discussing public funds, one said, "Now you can buy it casually to earn 500 a week, it will be stable", and the other said, "Buy Moutai, it will be 3,000 by the end of the year" - the enthusiasm of the stock market and the enthusiasm of "X Mao", which can be seen.
In June 2022, a brokerage analyst publicly shouted, "I should be the first person to shout 4,000 points on the whole network, believe in the power of believing", which caused heated discussions in the market for a while.
More importantly, some well-known private equity fund managers have voted with their feet and leveraged to buy the bottom in the past few years, only to encounter Waterloo, and the products have erased the accumulated net value for many years, causing customers to lose money and ruining the reputation of the industry accumulated over the years.
This shows that even the most professional, intelligent, and resourceful investors often fail the course of "predicting the future"; At the same time, they are often wrong and seriously lagging behind in the seemingly less difficult subject of "judgment cycles".
In this three-year bear market, the smartest group of people only came to their senses at the end.
The rotation of cycles can explain why some star fund managers rise and fall like meteors: they are always doing the same thing, they are always at the same level, it is the cycle that pushes them to the altar, it is the cycle that pushes them off the cliff.
There is no complicated reason, but it just happens that the market cycle, the industry cycle and the personal cycle overlap and resonate, so he is pushed up at some moments, appearing particularly tall and outstanding, and suddenly becoming mediocre and clumsy at other moments.
As a result, with the sudden rise and fall of performance, the public has ruined its reputation; In fact, YYDS is this person, and the weak chicken and rookie dog are the same person.
In my opinion, most of the "lucky ones" who are selected by the cycle are unaware of the power of the cycle, and unconsciously magnify their self-image, which leads to the final loss of ground.
Those who evaluate them, unaware of the power of the cycle, view tailwinds as their personal trait and blame headwinds on themselves, resulting in a misappraisal of the eventual over-exaltation and over-devaluing.
As a fund investor, if you don't realize that there is a cycle in the performance of a fund manager, it is often easy to participate in someone's performance at the peak, and what awaits him is naturally the mean reversion of subsequent performance.
In many cases, it is not people who change suddenly, it is just time and space, and it is just a cycle of rotation.
2. The Dance of the Cycle
The bull and bear rotation of the stock market is just a small profile of the cyclical force.
Cycles may be one of the most mysterious forces that dominate the operation of the world, although "seeing and seeing", "listening to and hearing", but from the good and bad of life to the rise and fall of the industry, to the expansion and contraction of the economy, and even the prosperity and decline of the place, the power of the cycle traces are everywhere, "the body and things are not left behind".
Understanding cycles is the core of understanding the laws of world operation; Understanding the cycle is a key part of understanding why the stock market is so hard.
Howard Marks uses the analogy of a "pendulum" to a cycle, providing some valuable and "deterministic" insights:
1. The pendulum is destined to swing from side to side;
2. The pendulum stays at the midpoint for a short time;
3. The pendulum is either too left or too right;
4. When the pendulum swings to the extreme, it will definitely reverse;
5. Excessive swing in either direction is itself accumulating reversal energy.
It is beneficial to know that cycles have these characteristics; But what is even more beneficial is that we also need to know - "what not to know":
1. We don't know the magnitude of the pendulum's swing;
2. We don't know why the pendulum stops and swings back;
3. We don't know when the pendulum will reverse;
4. We don't know the magnitude of the swing in the opposite direction after the reversal.
For the topic of "cycle", we now have some "knowing" and "not knowing", and after mixing them, we can "cook" some suggestions for action.
First, when experiencing a one-way vigorous movement, it is easy for people to extrapolate linearly and mistakenly think that this is an eternal trend - an eternal bull market, an eternal bear market. At this point, we need to remember the eternal nature of the cycle and bravely answer: no.
There is no such thing as a permanent bull market, and there is no permanent bear market; There is no eternal spring, and there is no eternal winter. Trees don't grow to the sky, and we rarely witness 100% of their value destroyed – unless it's something that is worth 0 in itself.
Second, don't speculate on the timing of the reversal.
Because the power of cycles is so great, there have been attempts to predict cycles since ancient times, especially that crucial turning point.
But I deeply doubt that this is not something that can be done by human beings. In fact, in the matter of cycles, remembering that cycles have always existed, remembering that cycles reverse, remembering that movements accumulate reversal energy, can provide a lot of references for action - we don't need to know the exact point.
If you had to guess the timing of the reversal, you would often spend a lot of time and energy, with little and no reliable results.
In recent years, there have been many puzzling problems in society, the economy, and the stock market, and you can interpret them with very complex theories, or you can explain them with a very simple model: everything is just a cyclical phenomenon.
Why is it so hard to make money in recent years? Because the economy has entered a downward cycle. Why are housing prices low and real estate developers struggling? Because the real estate cycle is starting to reverse. Why does the stock price keep going bearish? Because the stock market has entered a bear market cycle.
The important answer is not why, the important answer is that all movement does: it reverses.
Lao Tzu said: "The opposite, the movement of the Tao."
There is no forever rising asset in this world, and there is no economy that is always thriving, which is as natural as the transformation of yin and yang, the alternation of rain and rain, and the rotation of spring and winter.
Even, when individuals encounter setbacks and adversities, they must remember that the cycle is silently working, the good will pass, and the bad will naturally pass.
The key is not the cycle itself, the key is how you perform in the cycle.
If a person only takes what he deserves, does not become arrogant in good times, does not belittle himself in adversity, and practices silently in the style of "traveling twenty miles a day", then he will not be easily fooled by cycles. We can expect that in the next cycle, his overall performance will be higher and better.
If a person is overly complacent in good times, too pessimistic in adversity, and takes too many things that he does not deserve, he does not control the rudder of his destiny, but only naturally rises and falls with the waves of the cycle - we can expect that he will remain in the same place in the next cycle, or even worse.
As far as the company is concerned, we default that the company will have good luck and bad luck, and the key is not the good or bad luck itself, but the performance of the company in the face of luck.
If a company is just an imposter of great luck – for example, some companies in a health incident suddenly make a huge profit and then fall rapidly a year or two later – such a company does not deserve high praise.
What we look forward to is that the high branch can still remain rational and concentrate on practice when going lucky; Stay calm in the face of adversity, don't feel sorry for yourself, think quietly, and work silently.
Such a company can be called "resilient".
3. The fooling of the cycle
There is a line in an anti-Japanese drama on the Internet: "Comrades, the eight-year War of Resistance has begun", and there are even screenshots circulating without knowing the authenticity, which makes people laugh.
The logical conflict of this paragraph is that no one can know in advance how long the War of Resistance will last, maybe three or five years, maybe ten or twenty years, who knows? After all, at that time, there were doubts about whether even it would win.
But let's assume that someone really travels back in time and sends you a message, "The War of Resistance Against Japanese Aggression has only been fought for eight years" - ask, what impact will this message have on you?
I believe that as long as you firmly believe in the message of the "Eight Years of Resistance", you will gain much stronger mental resilience than the average person, and have more courage, perseverance and serenity to face the pain of reality. Because you know that although the process is brutal, all the chaos will end and the world will return to normal.
Although you don't know why or how to make it happen, when you firmly believe that "it will all end," you will have hope. After all, for an ordinary person in the midst of war, the biggest psychological torment may be: not knowing when it will all end; I don't know if it's really going to end.
It is the fooling of cycles: people will forget that cycles exist.
Most of the time people forget about cycles, firstly because the situation is too drastic, and secondly, because they last too long, people tend to deduce linearly according to this, thinking that everything in the present will last forever. Of course, there is another situation, people's high desire for good things, and high fear of bad things, will make people lose their certainty in the cycle.
But as Lao Tzu said, "the wind does not end, the rain does not end", and when encountering extreme weather, you must remember that the storm will not last forever. When encountering extreme situations, it is also important to remember that extremes are not the default state of history. The default state of history is to divide and merge, to govern chaos and chaos, to negate negation, and to reverse and reverse.
The good will pass, and the bad will pass. Not to mention bulls and bears?
The second fool of cycles is that they confuse cycles with good and bad/right or wrong.
The most vivid analogy is taking the elevator: some people are reading in the elevator, some people are running in the elevator, some people are sleeping in the elevator, but when the elevator reaches the 20th floor, they all feel that it is for reading, exercising and sleeping, and forget that the most important thing is that they are in the elevator.
cycles, with tailwinds make you think you're great, with headwinds you think you're bad. But in reality, you're neither that good nor that bad. The world is not a precision machine, and the world is not a grass platform.
A pig will be blown into the sky at the tuyere, and if it really thinks it can fly, it is really a pig through and through. Of course, Kunpeng also needs an "outlet" to take off, but when it flies, there is obviously an essential difference between Kunpeng and Fliggy.
Don't want to be fooled by the cycle, when you get success and benefits, you should pay attention to how much tailwind you have with the help of it, and don't "covet the merits of heaven for yourself"; When encountering setbacks and failures, be aware of how many headwinds you have encountered, and don't easily underestimate yourself.
Fourth, the power of life
When we lament the grandeur of the power of the cycle, it is easy to imagine that people are like duckweed, following the ups and downs of the waves, the so-called "everything is fate, and nothing is up to people", and we suddenly feel the insignificance and powerlessness of life.
This is another fool of the cycle: to make people despise the power of life.
If it's just a dead thing, then it's naturally just going with the flow. However, the vigorous life of the creatures will not only drift with the waves, but also absorb nutrients in the repeated ups and downs, gradually grow, and even spread to the entire sea, multiplying farther and farther.
Although we believe in the law of entropy increase, and know that things tend to be disordered and chaotic, we also note that the greatest characteristic of life is to absorb energy, metabolism, growth and reproduction, resist chaos, and create order.
That's why, in any period of history, there are always people who can't make the same choice and achieve different things.
People are alive, and enterprises are alive. You have a choice.
In the cycle of economic expansion and contraction, some enterprises rise and fall and stand still, and some enterprises become stronger every time they experience the baptism of the cycle; In the bull-bear rotation of the stock market, some people are getting poorer and poorer, some people are making profits and losses and standing still, and some people are crossing the bull and bear and getting richer and richer.
Just like after every stock market crash, the news will report how much money Li Ka-shing and Buffett have lost, and it seems that they are the biggest losers in this crisis, but what the news does not explain is: after suffering the N round of stock market crash, why are they richer now?
Resilience, not an immune cycle; Resilience is to survive the cycle and have more vitality.
"Everything is fate, and nothing is up to anyone", but there is life that will grasp the "half" exception, grow out of the gap in the sun, and be full of vitality.
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本文来自微信公众号:CxEric的读书与投资笔记,作者:CxEric
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