The A-share market has fallen so far, and today I will write a sincere chat post.
As an old citizen, digging the base of the observation of the capital market for a long time, speaking of which, the big bull and bear and the small rotation, the cycle has gone through several rounds.
This round of memories is the latest and the most difficult. In the past two and a half years, I have experienced declines again and again, defended the pass again and again, waited for policies, waited for strategic counteroffensives, waited for a smooth bull market, and couldn't wait for a rebound that kept up with the index.
In the past two years, we have been "full of bitter tears" in the repeated A-shares, and the number of readers of the articles has also followed the market changes and the ups and downs of readers.
Let's have a good chat today~
01 Reminiscence: The past of A-shares
The beta of history over the past many years has undergone structural changes in the past two years, and this year, the topic has become more and more heated from the law of the discussion cycle to the turn of the discussion era.
Peaks and troughs, there are always various stories to prove that things will be more extreme, and someone will firmly believe that this time is different. At this time, instead of arguing with the story of the present, it is better to look at the past and see the essence through the phenomenon:
In his book Cycles, Valuation, and Human Nature, investors write:
Over the past 20 years, we have seen human greed and fear. In October 2007, people said that 10 years of gold, 10,000 points are seized; In October 2008, a once-in-a-century financial crisis made people feel like they were doomed; In June 2015, people were excited that the Internet was changing their lives, and the cycle was no more; In October 2018, there were concerns about international friction...... In fact, everything is human nature, and panic is no more rational than fanaticism.
Today you feel panicked, and you feel that the answers to many difficult questions are still blowing in the wind, and we look at the exchanges:
The 2008 bear market, a once-in-a-century financial crisis. After Lehman's bankruptcy, the market accelerated its decline, and it is not an exaggeration to say that there is a "sense of doom". At that time, many investors thought that there would be no bull market for a long time, and the "Great Depression" returned, but after the Shanghai Composite Index reached 1664 points, the market entered a surging small bull market after a short period of time, and the performance of U.S. stocks was even more surprising.
From 2011 to 2012, as the market fell, investors questioned the growth model of China's economy, and the two major credit carriers of real estate and urban investment underwent profound changes. Is this the end of 30 years of economic prosperity? It turned out afterwards that the domestic economic growth rate did experience a series of "downward steps", but at the end of 2012, the market broke out in the GEM three-year six-fold bull market.
In the second half of 2015 and the beginning of 2016, after three rounds of sharp declines, the leveraged bull burst, and the popular over-the-counter allocations died down, and there were voices that the entire Chinese financial system needed to be rectified. Just when many rational investors were ready to survive the bear market for a few years, they didn't know that it was the beginning of the "core asset" bull market in A-shares.
At the peaks and troughs, various grand narratives seem to be irrefutable, but after the bull and bear transformation is observed, through the essence of the phenomenon, for the capital market, cycle, valuation and human nature are hidden in it, three constant existences.
The cycle mainly describes the changes in the prosperity of macro, industry and company from the perspective of entities; Valuation, on the other hand, projects the entity onto the secondary market, and how much stakes are required to express our assessment of the entity; Human nature is infinitely amplified in the secondary market, which exacerbates the volatility of valuation and even prosperity.
If you believe that A-shares are an emerging market with only trends and no valuations, you must be blamed here. The trend of A-shares is indeed more extreme, but this extreme trend only makes the pendulum farther away from the midpoint, and does not prevent the return from happening. If you don't believe in regression, then you won't be able to see the trend clearly.
One generation tells the story of another, and people can't predict when they will get out of the crisis, but in the end, the crisis has passed.
02 A generation of stories, a generation of bulls and bears
Now, looking around the environment, "gold shines with the brilliance of hedging, treasury bonds carry the promise of stability, and real estate reflects the pulse of the economy", the current A-share market has a layer of "sad" background, and it is telling the current story.
It has been said that the whole market is waiting for real estate at the moment.
When the center of gravity of the domestic economy in the past inevitably enters a winter that is not short, not many people can pass through the fog of complexity and firmly identify the future.
In fact, there may be a time lag in the effect of real estate policy, and the current is in a "transition period between old and new kinetic energy" similar to that in 1998-2000.
But the differences are:
In 98-00, it was from labor-intensive light industry to capital-intensive heavy industry, and the proportion of heavy industry and light industry at that time was close, and the conversion of new and old kinetic energy appeared relatively smooth;
The transformation we are facing today is from traditional heavy industry to technology-intensive high-tech industries (i.e., new types of productivity).
At present, the real estate chain, which represents the traditional economy, still accounts for 23% of GDP, while the proportion of strategic emerging industries is only 13%.
There is a large difference in the size of the old and new economies, which makes the transition environment we face more complex and volatile.
But the pessimistic argument actually ignores:
- In the past decade, the year-on-year growth rate of the industrial added value of the mainland's high-tech industries has been significantly higher than that of the whole.
- ASEAN, the Middle East and other regions are expected to be used as new growth points for external circulation.
- China's international competitiveness is not only reflected in the "new three things", China is the only country that has all the industrial categories in the United Nations Industrial Classification, and the number of industries in the manufacturing sub-sector ranks first in the world in terms of the top 10 share of added value.
(Source: New Hope - Reflections on China's Economy and Capital Market, Haitong Securities)
The replacement of old and new drivers and the decline in economic growth faced by the transformation will inevitably bring about the release of risks and the redistribution of benefits, which is a process of dissipating confidence and patience. However, risks are also brewing opportunities and changes, and transformation is the only way for a country to rise.
Looking back on the past, the development and changes of the financial market are also full of ups and downs and the overlap of the old and the new.
Some of the fears are wrong, and the decline will end with the error being proven gradually, and some of the big fears are right, but the decline will still end, because the stock market valuation will absorb the long-term worries in advance, and then even if the long-term worries still exist, the stock market may end the correction and regain a new sea level under a completely different bullish logic.
The other side of the "sad" background is the pain of the A-share market as an emerging market, the improvement of the system.
I have to admit that our capital market was born in the 90s of the last century, and it has only been more than 30 years, and it is still in the process of "forming a new affirmation in negation", and the current stage is somewhat different from the mature market that has been built with more than 100 years of experience.
The current market is indeed in a long period of grinding, as Feng Menglong wrote in "Yu Shi Mingyan": repeatedly, but not healed. However, this process is the process that A-shares must go through to become a mature market, and it requires more patience and confidence from all parties on the "difficult but correct" road of cultivating a benign market environment.
In any case, we can feel that the current regulator attaches enough importance to the voice of the market, and the positive quantitative change will eventually approach the qualitative change, and with the top-down execution advantage, we have reason to expect that the future market will be different from the present, enter a virtuous circle of resonance and upward resonance between the economy and the capital market, and move towards further prosperity and maturity.
At present, in an era of great changes unseen in a century, the greatest benefit is likely to come from the ability to objectively analyze changes in the global strategic pattern, temporarily ignore short-term disturbances, and find solutions.
03 After walking, think about it a little
At the end of each round of A-share long season, the trend of asset allocation will move from paper to the field.
A review of the performance of major asset classes over the past two decades shows that holding one asset alone can lead to excessive risk concentration and thus greater impact on market risk:
(Source: Wind, as of July 2024)
For example:
Holding only U.S. stocks experienced drawdowns of more than 30% in 2000 and 2008
Holding only commodity indices (e.g., CRB) will not yield positive returns for 5 or 6 years during the post-2008 period of low inflation
Holding only gold, there was hardly much gain in the 80-90s when the global economy was growing at a high rate.
(Source: Wind)
However, the traditional asset allocation portfolio, such as the 60/40 equity and bond allocation, more than 80% of the risk is concentrated in the equity part, so it performs poorly during the recession and stagflation periods.
Therefore, the only way to return to multi-asset allocation is in the end. The multi-market, multi-strategy, and multi-asset allocation plan has become a way to control drawdowns and absolute returns, and bonds, gold, dividends, and overseas should all become tools for portfolio building.
According to GMO calculations, the effectiveness of multi-asset allocation to obtain returns has reached the current high, reaching a high point in the past 35 years.
In addition, today, we should understand better that the basis of cognitive funds is to understand risks and fluctuations, have a clear match for the use cycle of funds, and then iron out fluctuations through time to obtain reasonable returns.
High-yield products often correspond to high risks, and greater volatility may mean more investment opportunities, but if you want to smooth out volatility and earn income, you naturally need to wait longer, so we need to match the right products according to the use period of funds before entering the market.
Cognition is only the basis of investment, and enduring the suffering of human nature is the main purpose of investment. Cognitive cycles and then use cycles, what we have to learn is to delay gratification, and no matter how the times change, what is closer to first principles in the equity market is always to buy good things at cheap prices.
The boiling season is like everyone walking in a long dark tunnel, not knowing where the end of the tunnel is, but when we walk out of the tunnel and see the light, we will find that the sky is just right, the sun is clear, and hope is always hidden in despair.
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Finally, digging base shares a sentence from "As Always":
Every few years someone says that the market has failed because the market is rife with speculation or that prices have detached from fundamentals. But in reality, the market has always been like this. People are not losing their minds, they are just testing the limits of what other investors can afford.
This sincere chat post is here first, we continue to accompany each other, the contemporary bull and bear story to this day, and in the end it will inevitably be the same as yesterday, there is an end.
Risk Warning
The views expressed in this material are for informational purposes only and are not intended as any legal documents, and all information or opinions expressed in the materials do not constitute final operational advice on investment, legal, accounting or taxation, and we do not make any warranties for the final operational advice regarding the content of the materials. Under no circumstances shall the Company be liable to any person for any loss arising from the use of any content in this material. The above content does not constitute a recommendation of individual stocks. The past performance of the Fund and its net worth are not indicative of its future performance, and the performance of other funds managed by the Fund Manager does not constitute a guarantee of the performance of the Fund. The Manager does not guarantee profitability and does not guarantee a minimum return. Investors should fully understand the difference between regular and fixed investment of funds and savings methods such as small deposits and withdrawals. Regular investment is a simple and easy way to guide investors to make long-term investments and average investment costs. However, regular investment does not avoid the inherent risks of fund investment, does not guarantee investors to obtain returns, and is not an equivalent financial management method to replace savings. The market is risky, and you should be cautious when entering the market.