How to make an investment decision

About stock

Posted by GRY on November 2, 2018
Why does stock and fundamentals go away?

We see the rise and fall is just a result, and the logic and the driver behind it are more important. Rise to the point of view of the idea, more reflect the differences of human nature, three views and cognition. In a complex market, each person buys and sells from a different starting point: someone just makes a trade, cashing out gradually in a logical verification; Some people prefer to take a long-term view. Different people also give different value ranges for their different valuation systems and adjust their pricing models constantly with the changes of the industry or companies. It is anticipate that it will be important and expected that change will be important. Therefore, the investment income comes from the expected cash, and the excess investor income needs to come from the expected difference between you and the market.

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The stock market is a barometer of the economy, reflecting the behavior of human beings and the reflection of human nature.

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I. Common sense is important: anything out of the norm must be unsustainable
  • Typically, prices at cyclical highs may be short-lived. What can eventually be realised is far from the highest annual profits.

  • Growth stock inflection point: profit cycle and life cycle synchronization, but most of the time lags behind the stock cycle. Especially, the growth target of technological innovation will break away from the valuation constraint at the initial stage.

In many emerging industries the share price tops out ahead of the profit cycle by about a year or two. Demand - driven growth is less obvious.

There is a funny joke: a typhoon is big enough to blow up a pig, and the pig thinks it can fly, but forgets that the butcher is staring at the fat pigs that shout the strongest

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II. Profit and loss stops are equally important

People’s psychological expectations tend to be self-reinforcing as stock prices go up and down.

The stock market is an effective market, but it can also be overdone in its blindness, hyping the concept of chasing the theme. Any hint of it is bound to be exaggerated and self-reinforcing as share prices move, inflating expectations and ending up empty. In a market with high volatility, you should not go too far into the play, and always adhere to rational, objective and decisive.

Market volatility is always amplified, underestimated to reasonable, bubbled to bursting and returned to undervalued, and repeated.

The mastery of degrees is always critical. Every time a bubble comes, there are two kinds of people: those who keep pointing out that it will burst quickly, and those who gladly swim in it. The former is getting smarter, and the latter is getting richer. Leaving too early will also miss a lot. The balance between gains and losses is always difficult.

III. Views should be positive, which is the premise of long life

Research and investment strive to be rigorous, follow the framework and logic, and pursue reproducibility. Random walk without purpose is the most dangerous. Therefore, as you can see, as long as our investment logic is not rejected, our view will stick to, rather than swing, until the last one is realized by the market. Investing has principles, like your way.

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IV. Logical validation, not stock price validation

The market has been going up for no reason, but that doesn’t mean you have to catch every one. Rising share prices do not necessarily mean the logic is correct.

Investment and research are more about logic than rising share prices to judge a company’s value.

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V. Investment&research fused together
  • Research optimism, investment caution

  • Remember to follow your heart. Most of the time there is no need to read the short-term ups and downs

  • The process of research is to eliminate the false and retain the true

Good investors strive for a smooth yield curve. But no matter to traditional still emerging industry, wait for a trend to be clear to go again layout, what need is courage and boldness; While the trend is not clear to layout is required to look and insight.