Dong Baozhen Radio listeners, hello everyone.
Today I would like to share with you an important point that I have explored in practice: common sense is the most important thing in the investment decision-making process. You don't even need to know the details, you don't need to look at the statements, as long as you stick to common sense, you can make regular profits in the investment market.
01
Nvidia
It all started with a post I made on June 6th.
I'm announcing that from this day onwards, I'm going to use simulation software to short Nvidia stock. At that time, Nvidia's stock price had risen to more than $1,200, a price that had risen more than tenfold in just a year and a half, and the price-to-earnings ratio had reached a rare high.
In addition, Nvidia's net profit has soared from billions of dollars to more than $20 billion, and this abnormal growth is obviously unsustainable, and I don't think its high growth is the norm.
At the time, Nvidia's market capitalization was equivalent to a quarter of the total market value of China's stock market, and it was even said to be close to the market value of Germany, the world's fourth-largest economy. This extreme situation is very abnormal, because it comes from the rapid rise in its stock price, which is not supported by logic.
Comparing the market value of one Nvidia company with the total market value of Germany, or even the market value of the Chinese stock market, is simply incredible.
Another reason that prompted me to go short was when I saw a big V who was preaching about investment opportunities in United States every day, and the market sentiment was unimaginably manic. He has repeatedly declared that AI is the future of mankind, and whoever does not invest in AI will be left behind and miss out on this era. He encouraged everyone to buy Nvidia as soon as possible, even though Nvidia's stock price has risen from a few dozen dollars to more than a thousand dollars, and he also claimed that it could rise to $25 million.
Seeing this frenzied market performance, I knew something was going to happen. Therefore, I posted a Weibo post on June 6, announcing a simulated short selling of Nvidia. Two months later, Nvidia's stock price fell to $980, and I made a 25% profit on the demo trade.
02
Manic market
This morning, an investor told me in a private message, Mr. Dong, you made a profit by simulating shorting Nvidia by more than 20%. When I saw the news, I couldn't help but feel a lot of emotion in my heart.
In May or June, I seriously considered shorting Nvidia and Nasdaq in real trading, but ultimately rejected the idea. Because I don't think it's necessary to have two battles at the same time, it would be very dangerous.
I have to focus, not be distracted, and keep my strategy steady. I've been fighting bank stocks for over six years, and I'm either going to go bankrupt or win big and must not be distracted from other investments.
Although I knew that there was a bubble in the United States stock market, which was an opportunity for a big airdrop, I eventually gave up the real operation and only conducted a simulated shorting.
This simulated short sale made me think about an important investment academic question: I have never seen any detailed information about Nvidia, let alone its earnings reports. I don't know anything about Nvidia's AI technology and business details, but I'm convinced that Nvidia's stock price will fall.
Based on my own strategy and strategy, I didn't put this idea into practice, but I did have a firm belief in my heart that Nvidia would fall, and it turned out that I was right.
Does this mean that you don't need to know the details to make the right investment decisions?
Why can I still make the right judgment without knowing any details about Nvidia and not looking at the financial report? This illustrates that in some cases, common sense and intuition can prevail over complex analysis and data.
03
The importance of common sense
Common sense is an important paradox in the world of investing: you don't need to be particularly familiar with all the details, but you need to be aware of common sense.
Warren Buffett once said that stock investing is the only area in the world where amateur investors can beat professional investors.
Why do amateur investors beat professional investors?
Because common sense is common sense, and professional investors tend to obsess over the details and ignore common sense.
Amateur investors may be ignorant of the details, but they always stick to common sense and use common sense to make decisions.
In my case, when I saw the trend of Nvidia's stock price, that kind of rocket-like surge, like pulling onions on dry land, instantly soared into the sky. This right-angled take-off is inevitably a precursor to a collapse.
Why? Because I've seen a lot of similar situations.
In the 90s, many stocks rose from one dollar to twenty dollars in less than a month.
The same is true of Nvidia, where there is no limit on the price limit, and the stock price soars directly into the sky. And this trend eventually collapsed, without exception.
The development of things is not abrupt, but gradual, accumulating little by little. Any extreme technical trend must be operated by someone behind the scenes, or a completely irrational bubble trend.
04
Shede Liquor
Three years ago, in May and June 2021, I publicly reported that Shede Liquor was engaged in stock manipulation. At that time, the share price of Shede Liquor was 270 yuan. Today, Shede Liquor's share price has fallen to 50 yuan, an 80% drop in three years. At that time, I pointed out that the trend of Shede Liquor was not normal, and someone must be manipulating. If you follow this trend and carry out an investigation to freeze transaction information, you will definitely be able to catch the criminals who manipulate it.
However, no one paid any attention to me at the time, and the so-called institutions that protect small and medium-sized investors were indifferent. Only the investors of Shede Liquor made a counter-report to me and reported to the Beijing Municipal Administration for Industry and Commerce that I used the advantage of public opinion to manipulate the stock price, causing them losses. The Beijing Administration for Industry and Commerce conducted several investigations against me, and I also went to their office several times to talk in detail and explain the situation.
Looking at it now, the basis for my report on Shede Liquor is correct, and that kind of rocket-like trend must be a manipulation. That's the importance of common sense. Any rocket trend that rises dozens of times in a row will eventually usher in a big collapse.
04
Use common sense to judge the future of NVIDIA
Chart on NVIDIA's net profit. In previous years, NVIDIA's net profit was only between two or three billion to four billion, but this year it soared to tens of billions. Again, the world is steadily changing, and it is impossible to be 30 degrees Celsius today and suddenly minus 30 degrees Celsius the next day.
In the same way, the sudden increase in Nvidia's performance is also short-lived, and common sense tells us that it is not sustainable.
Coupled with the frenzy for AI in the market, people have thought that Nvidia is the leader of AI, and whoever does not own AI will be eliminated. This manic market sentiment is clearly characteristic of the middle and late stages of the bubble.
Based on common sense, I decided to short Nvidia.
My judgment turned out to be correct. I think Nvidia's reasonable share price should be in twenty or thirty dollars, and now it's $98, which means that Nvidia needs to fall by 60 to 70 percent.
Why is this happening?
Also based on common sense, the surge in performance is a non-recurring surge, and the boom in price-earnings ratio is a bubble phenomenon. In fact, Nvidia is at the beginning of the Davis double.
This double kill is very tragic, and many tragic losses are caused by double kills. Of course, on the flip side, many of the big investment opportunities are also the result of Davis's double-click.
In this case, only experience and common sense are needed, and no need to know the details to make the right investment judgment.
05
Take advantage of extremes and common sense
Warren Buffett has a saying called "look at both ends". Once extremes occur, they are easy to identify, and there is no need to delve into fundamentals. By the time extreme overvaluation or extreme undervaluation occurs, if you're still studying the fundamentals, it means that you don't really know about stocks and don't have a lot of experience.
Researchers in their twenties and thirties often make this mistake: they are still studying fundamentals when they are extremely overvalued, but in fact, overvaluation has nothing to do with fundamentals; The same is true when it is extremely undervalued, and undervaluation has nothing to do with fundamentals.
In fact, it is possible to make a judgment without looking at the fundamentals, because the logic and common sense of the world are just that. Based on this common sense, we can make investment decisions.
For example, when I look back on my experience of investing in Moutai, I find that I have always had a clear belief in my heart: it is impossible for Chinese not to drink Moutai, and it is impossible not to drink good wine. This applies not only to China, but even to all people on the planet who do not refuse good wine. This is common sense, and it is also the ultimate source of my belief in investing in Moutai.
Although I have written many analytical articles to explain this phenomenon, these analyses are really only explanations of events, and even if I don't analyze them, they will not affect my beliefs. Of course, through analysis, I have gained a deeper understanding of the industry, and now my views can also influence analysts in the liquor industry.
It is necessary to grasp the details, but not mastering the details will not change the common sense: how can ordinary people not drink Moutai?
06
Common sense and bank investment
Today I would like to talk about my investment experience in the banking industry.
I have become a typical figure in the Chinese stock market that has not made money for five or six years. But even so, I firmly believe that as long as the bank does not go bankrupt, my investment is worthwhile. People who think that banks will go bankrupt are illogical. As a cornerstone of the socio-economy, the importance of the banking sector cannot be overlooked. If a bank fails, the entire economic system will collapse with it, just like the heart stops beating and the rest of the body can't survive.
The idea of expecting a bank to go bankrupt is undoubtedly a misguided common sense. Even without looking at the fundamentals and statements, common sense tells us that the banking industry will not go bankrupt. Of course, studying the report can give us a more detailed picture of the situation, but sometimes focusing too much on the details can make us forget common sense.
Many professional organizations are knowledgeable about data and reports, but they ignore the most basic common sense. They may prove that ordinary people don't drink Moutai, or that sooner or later the banks will go bankrupt, but these conclusions clearly defy common sense.
As Warren Buffett said, the stock market is the only area where amateur investors can outperform professional investors. Because amateur investors rely on common sense, while professional investors often forget common sense because they are so knowledgeable. As long as common sense is adhered to, amateur investors can also achieve good results.
Combined with the example of Nvidia, this apparent bubble is still being touted by some as an investment opportunity in United States after fifteen or six years of stock market rally. If these people really believe it, then they are completely unprofessional; If they are foolish, then this behavior is extremely egregious and must be regulated.
In this process, my understanding of investment is the importance of common sense. China's stock market, the world's second-largest economy, remains undervalued despite economic adjustments and changes in its development model. Blue chips with low valuations, especially state-owned enterprises, and conversely, small-cap stocks have surprisingly high valuations.
Amid the turmoil in the global stock market, the Chinese market has become a safe haven for funds. After the collapse of the United States stock market, funds need to find a safe haven. The Chinese market is particularly precious and scarce in this context. That's because other major economies, such as the United States, Europe, Japan and Korea, have experienced prolonged bull runs, with only the Chinese market falling all the way and valuations at historically low levels.
Based on common sense, we can conclude that the real investment opportunity is in China.
This is a common-sense judgment and does not need to go beyond common sense.
Common sense is a master of investment, thank you.