Famous funds invest in big V Shen Dive: Index investment should keep in mind the four principles

On August 3rd, the "Crossing bulls and bears, holding the index and perseverance" index investment forum held by Tiantian Fund (Beijing Session) was officially held in Beijing. At this conference, Mr. Shen Qian, the famous fund investment big V, shared his index portfolio construction method.

Shen Qian said that when doing index investment, it has four core concepts:

The first point is not to know not to do, do not allocate for the sake of allocation, in fact, there are now a lot of index funds, but there are many index funds whether it is the market covered, the variety, or its compilation rules, individual investors are very unfamiliar, and there are some investment varieties Pricing logic is very complex, which is actually far beyond the cognitive ability of individual investors, investors must admit that many things we just can't understand. But there are no stocks that are more interesting to invest in, no index fund is something you must buy, investors just need to do what they can understand.

The second point is not to predict the short-term trend of the market, through scientific asset allocation, to obtain a reasonable return on various types of assets, investors always find ways to predict the market, but have to admit that the market short-term is indeed impossible to recognize. Most of the time in the market is actually not particularly expensive, not particularly cheap range oscillation, after five years or ten years there will be a more extreme cheap or extremely expensive state, in the extreme cheap and extremely expensive time is very easy to make a judgment, but such a time point is relatively small. In addition, it is difficult to judge its direction at other points in time, in this case, the investor's response is to do a good portfolio, so that whether the follow-up is up or down, we have a very ample space to deal with.

The third point is the second point of the undertaking, investors build the index portfolio at this stage of the allocation of what kind of assets and how many positions, and how to adjust the rotation in the future have their own logic, this logic is their own understanding of risk and return, if the investment ability can also obtain a certain excess return.

The fourth point is that the basic tool for investors to build an index portfolio is the index fund, and the index fund advantage has the advantages of transparent positions and low fee rates. When individual investors build a portfolio, they should be based on a wide base, supplemented by industry index funds, which is actually very demanding for the ability of individual investors, and requires you to have a very deep understanding of the industry business cycle and investment value.

The following is the full transcript of the speech of shen qian, a famous fund investment big V:

Shen Qian: Hello everyone I am Shen Qian, I am an individual investor, what I want to share with you today is how individual investors build index portfolios. First of all, I have worked in an Internet company for a long time and am now a professional investor. I've been investing myself for many years, and I've been learning about Buffett and Munger all these years, but now value investing has become a rotten word, and conservative investors can summarize their own investment style.

Over the years, in addition to my own investment, I have also shared on the Internet, and my articles, the content, basically focused on the field of household asset allocation. I have also been updating my investment records online since 2015, and the real systematic and complete sharing was in 2016. My daily ID is Shen Dive, I have two real combinations, one is the small crocodile configuration combination, which is suitable for the one-time configuration of existing savings, and the other is the snail fixed investment plan, which is suitable for taking care of the weekly cash balance.

Today I want to talk about four parts, which is to talk about why to build an investment index portfolio and how to do it, including some core ideas, basic tools and models and cases.

First of all, the role of the index portfolio, the first one that everyone should think of is to diversify the investment risk, for example, account A full position holds the CSI 300 fund, account B half holds the CSI 300 fund, half holds the bond index fund, in most cases the impact is that the risk of account B is less than account A, which should be very easy for everyone to understand. The second point is to reduce the correlation of positions, stabilize asset fluctuations, and enhance the investment experience, half hold the CSI 300 fund, half hold the bond index fund, which reduces the position correlation from the investment variety, which also greatly reduces the position volatility, which in turn enhances the investment experience. Investing is fundamentally about improving our quality of life, and if you need to be scared and anxious all day in order to invest, what's the point of making money? The third point is that by constructing an index portfolio, you can obtain a certain excess return, but it has a certain premise, that is, to see whether your investment ability is passed, if the investment ability is not passed, the excess return is likely to be negative.

The following to share the core concept of my own index portfolio, the first point is not to understand not to do, do not allocate for the sake of allocation, in fact, there are now a lot of index funds, but there are many index funds whether it is the market covered, the variety, or its compilation rules, we individual investors are very unfamiliar, and there are some investment varieties Pricing logic is very complex, I think this is actually far beyond the cognitive ability of individual investors, we must admit that many things we just can't understand. But the more interesting thing about investing is that there are no stocks that you have to buy, and likewise, there are no index funds that you must buy, and we just need to do what we can understand.

The second point is not to predict the short-term trend of the market, through scientific asset allocation, to obtain a reasonable return on various types of assets, we always think of ways to predict the market, but have to admit that the market short-term is indeed impossible to recognize. Most of the time in the market is actually not particularly expensive, not particularly cheap range oscillation, after five years or ten years there will be a more extreme cheap or extremely expensive state, in the extreme cheap and extremely expensive time is very easy to make a judgment, but such a time point is relatively small. In addition to this point in time, it is difficult for us to judge its direction, in this case, our countermeasure is to do a good job of the portfolio, so that whether it is up or down, we have a very ample space to deal with.

The third point is the second point of the undertaking, when we build the index portfolio, at this stage to allocate what kind of assets and how many positions to allocate, and how to adjust the rotation in the future have their own logic, this logic is their own understanding of risk and return, if the investment ability can also obtain a certain excess return.

The fourth point is that the basic tool for us to build an index portfolio is the index fund, and the advantages of the index fund are said a lot, such as transparent positions and low rates. A special emphasis here is that I think that individual investors should build a portfolio with a broad base, supplemented by industry index funds, which is very simple, industry index funds, which have high requirements for individual investors' ability, and need you to have a very deep understanding of the industry business cycle and investment value. Now many people invest in historical data, which is very dangerous, if an industry falls into a permanent recession, no matter how you buy it is expensive, even if the historical valuation percentile is low, it is expensive, but if you buy a broad base or index fund will not face this problem.

Speaking of basic investment tools, from the perspective of investment varieties, many varieties have their own index funds, such as index funds, bond index funds, commodity index funds, REITs index funds, which can be divided into different markets. For example, stock index funds are divided into A-share index funds and U.S. stock index funds, A-share index funds such as the CSI 300, S&P 500 is the most famous representative of U.S. index funds.

Bond index fund can be divided into domestic bond index funds, overseas bond index funds, because overseas bond index funds do not have too many tools, my introduction is mainly based on domestic bond index funds, in fact, the index fund division type dimension is very much, we try to divide from two angles, the first is the type of angle, bonds can be divided into credit bonds and interest rate bonds, interest rate bonds themselves are not any credit risk, its fluctuations are mainly related to interest rates, so it is called interest rate bonds, the other is credit bonds.

Another way to divide bond index funds is the maturity time, usually for bonds with maturity of one to three years, it is called short-term bonds, and seven to ten years is long-term bonds. This category can be cross-combined, for example, there are short-term interest rate bonds, long-term interest rate bonds, short-term credit bonds, and long-term credit bonds.

Here is a table, mainly stocks and bonds, the reason is very simple, I think for the vast majority of individual investors, if you are not pursuing excess returns, you use the CSI 300, S&P 500 is enough, plus long-term and short-term bonds can be, there is no need to be too complicated.

How do these tools fit together? If you read a lot of portfolios and investment model books on the Internet, I introduce two books that I agree with very much, the first is the 50:50 equity-debt balance model, which comes from Buffett's teacher Graham's classic book "Smart Investor", the strategy is to initially allocate 50% of stock and bond assets, and the deviation reaches a certain threshold, then rebalance. How does this strategy perform in A-shares? I did a backtest. In order to make the backtesting time longer, I used the earliest CSI 300 index funds and bond funds in the market, and the yield actually outperformed the CSI 300, but the maximum drawdown was much smaller than the CSI 300, which was also acceptable to ordinary investors.

Another model introduced is Yale University fund David Swenson, who himself mentions in the book the portfolio that prioritizes individual investors.

He is particularly known for two books, "The Innovative Path for Institutional Investors" and "Unconventional Success," which is his second book, tailored for U.S. investors.

What is the actual effect of the combination? A friend of mine backtested the actual performance of this combination. From 1973 to 2017, the Swenson combination was similar to the S&P 500, but the Sharpe ratio and drawdown were much better than the S&P five hundred.

Just said that this combination is David Swenson tailor-made for American investors, now many domestic index fund tools are very rich, I made a domestic copycat version, roughly using these tools, how does the cottage version perform? I made such a combination from last year, operating for eight months, sharp ratio of 1.26, this effect is still OK, but unfortunately, the running time is too short, and it needs to continue to be observed.

The last case I want to talk about is the index portfolio I made on the daily fund, that is, the small crocodile configuration portfolio, its product positioning is a one-time allocation of our existing savings, for example, for example, how to allocate five million in ten years, the small crocodile configuration combination is to solve this problem.

Its income goal is to strive for a long-term annualized rate of return of not less than 10%, try to control the maximum drawdown within 15%, for the domestic excellent fund long-term annualized return of 10% can be achieved, the real difficulty is how to control the drawdown within 15%, for all investors the goal is how to reduce the drawdown in the case of guaranteed yield, which is also everyone's pursuit.

The frequency of the small crocodile configuration combination is very low, if the market does not appear an extremely violent fluctuation, the frequency of the adjustment in a year is once or twice.

In fact, the small crocodile allocation portfolio investment strategy has just talked to you a lot, focusing on the selection of high-quality stock index funds and bond funds.

Just mentioned that there are too many stock index funds now, how to choose is indeed a problem, whether it is my own purchase of stocks or funds, there is a process of first quantitative analysis and then qualitative analysis, through quantitative indicators to screen out the stock pool or fund pool, and then through my own understanding of investment, the target of the fund pool to do a screening, to complete the final selection.

I have several quantitative indicators when screening index funds, the first is the actual running time of the index, which must go through two rounds of bull and bear market tests, looking back at history, the A-share bull market and bear market are two rounds, one round is 2014, 2015, 2016 to the present, and the other round is, 06, 07, 08 These three years, therefore, the index fund I chose, the benchmark date, is generally before July 2005.

Secondly, since the establishment of the index and since the opening of the Shenzhen-Hong Kong Stock Connect, the income has significantly outperformed the CSI 300.

Here is a special explanation, I think that the opening of Shenzhen-Hong Kong Stock Connect has a landmark significance event for A shares, it has realized the opening of major domestic weighted stocks to foreign capital, and there are also several landmark events in December 2016, that is, insurance listed companies, such as Vanke and China Construction, which we are familiar with, the climax is Baoneng to buy Gree.

Whether it is Shenzhen-Hong Kong Stock Connect or insurance capital, they are essentially a sign of the increase in the pricing power of institutions in the domestic stock market, and this trend I personally feel irreversible.

We have said before that the Chinese stock market is a market in which retail investors are the main traders, but from these facts, the market is indeed gradually changing. To give a less appropriate analogy, a table of people playing cards, if the people who play cards in the middle of the game have changed, how can they still play according to the previous game?

Let's look at the qualitative indicators below, which have a lot to do with my personal investment philosophy and investment experience, and there may be friends who do not agree, and what problems can be exchanged again. First of all, I am very interested in the compilation rules of the index, if you have rich investment experience, you will see that the compilation rules of some indexes are very unreasonable, and the compilation rules obviously look unreasonable for the index, so you must boldly exclude. The second is that you have to look at what stocks the index heavy stocks have bought, and don't touch the heavy stocks that are junk stocks or fake stocks. The third is the broad-based index, supplemented by the industry index has just been mentioned.

I invested in two funds, one is ICBC SZSE Dividend ETF Link A, one is E Fangda SSE 50 Index A, the first one I invested in last year, although recently retraced a lot, but this year also has a yield of about 40%. The second index is the index enhancement fund, I myself am rarely selected index enhancement fund, mainly because the enhancement strategy is a black box, the reason why this fund is chosen, is because its enhancement strategy, especially stable, its overall enhancement strategy is over-matched food and beverage and medicine, less allocation of financial stocks, which is also in line with my own investment philosophy, and to be honest, its light and over-allocation is mainly concentrated on a few stock operations, SSE 50 a total of 50 stocks, I myself know more about these stocks, I also approve of the strategy.

Behind is the selection of bond funds, first talk about it, in the end to choose the active bond fund or bond index fund, if only I myself to operate the account, I will choose the bond index fund, very simple, I myself operate the transaction is very convenient, but I am in the daily fund on the index portfolio, there are many friends with the investment, each time the position adjustment needs a very high explanation cost, in order to reduce this cost, I chose the active bond fund, I gave the management right to my own trusted fund manager, let them make decisions for me. Screening active bond funds is similar to the standard just now, first through a quantitative screening of a pool, and then to see whether the investment strategy and position it discloses are in line with its own investment philosophy, which is not the focus of our introduction today, generally.

Focus on how to choose bond index funds, which is also a test of everyone's investment skills, first of all, you need to have a general judgment on the bond market, for example, the current ten-year Treasury bond yield is above 3.5%, at this time you can consider the allocation of some long-term interest rate bonds, below 3.5% you can consider the allocation of short-duration interest rate bonds. In fact, I just talked about the type of duration, here is a special mention of why I choose interest rate bonds, I myself allocate bonds, mainly to hedge the risk of stock market investment, followed by to obtain a certain fixed income. As we all know, if the stock market plummets, the central banks of various countries will release liquidity, and releasing liquidity is a positive for long-term interest rate bonds. For example, the stock market fell sharply in 2018, but the yield on the 10-year Treasury bond is still very good. The second is to look at the size and rate of the index fund, of course, the lower the rate, the better.

Bond index funds, I picked two, one is GF 7-10 years of CDB A, and one is GF 1-3 years of CDB A.

The chart below shows the current position of the Little Alligator configuration combination.

How does it all perform? Let's take a look at the picture, for various reasons this combination is only running in March on the daily fund, at present, whether it is absolute return or relative return, the overall or more in line with our expectations, of course, how the performance behind or please wait and see.

In the Daily Fund APP, search for "Little Crocodile Configuration Combination", the manager is Shen Qian, you can follow the investment with one click.

If you have any questions behind you can leave me a message on the Daily Fund, my sharing is here, thank you.

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