The author believes that it is impossible for most people to surpass the market through macro forecast, including the author himself.
in recent years, the macro aspect is one of the most important factors that affect the investment income. It is necessary to know some basic knowledge of the macro aspect, but that's all. Putting energy and time into more in-depth macro-level research is not good for investment income. Therefore, after understanding the macro aspect to a certain extent, you will feel that there is a bottleneck. In the author's opinion, apart from the macro aspect, if we invest time in the following three aspects, we will gain the most:
The author gives an example, which is wonderful:
A jar contains 1 balls, which are either black or white. A man takes a ball from a jar and guesses its color.
if you don't know anything about the color distribution of the ball, you can only guess that 5% is black and 5% is white, so the winning side is only half. If you know that 7% are black balls and 3% are white balls, then your winning face is 7%. Excellent investors have a deeper understanding of the distribution of black and white balls than ordinary investors, so they win more. But because of the existence of probability, it is still impossible to win 1%. Our research on fundamentals, market situation, combination surface and cycle is trying to make ourselves more dominant in the distribution of black and white balls than others.
the repetition pattern of the cycle seems very simple, but it is very difficult to determine where we are in the cycle. The author also mentioned the mean regression, and thought that a reasonable center point would bring things that swing periodically back to normal like a magnet. But after things return to the center point, they often don't stay for a long time, but will continue to swing.
The author believes that the market cycle is caused by human psychological factors. The most important content in the following chapters of this book is the author's interpretation of how previous events lead to later events in a cycle.
judging from the author's investment experience of more than 5 years, the financial cycle is generally symmetrical. Note that the author explained later: this symmetry is only for the direction of rising and falling, that is, there must be a big drop after a big rise, and there can be no big drop without a big rise. But the amplitude, time and speed may not be symmetrical.
The author mentioned that some research findings of behavioral economics and behavioral finance are very enlightening to our understanding of the cycle, and suggested that readers study hard. Psychology is indispensable and extremely important for investors to really understand the cycle.
The author mentioned that it takes 1 years to see a big cycle. Looking back at the A-share market, the plunge in 28 and the plunge in 215 basically conform to this law.
It seems to be correct nonsense to simply say that there will be a big drop after a big rise, and it is difficult to guide practice. "But there is a key point here. When the market price of something rises, investors will have a psychological tendency to think that the market price of this thing will keep rising, only rising, not falling; On the contrary, it is believed that its price will fall and will not rise. You bet against this one-track psychological tendency, but you can make a lot of money ... "That's why you have to learn the cycle.
from the beginning of this chapter, the author begins to talk about various cycles.
in this chapter, the author has an important point about the short-term cycle: although the birth rate and productivity are often regarded as important variables of the economy, and these variables will not fluctuate greatly in the short term, the author thinks that psychology, emotion and decision-making process (the author calls them the three protagonists of this book) are important factors that affect the short-term cycle, and these factors will cause huge fluctuations in the short term. Reason:
The author points out again in this chapter that it is extremely difficult to beat the market by economic forecast. Reason:
To sum up this chapter, the guiding significance for practice is not to make economic forecasts or listen to the so-called experts' economic forecasts. But investors can think that the prediction of the mainstream opinion is correct. Although we can't beat the market by referring to mainstream opinions, we can have a correct judgment on the market trend with a high probability. For example, regarding the development trend of China's economy, Huang Qifan's views in Structural Reform are clear and represent the official views to some extent.
The author of this chapter talks about the mediation of economic cycle between the central bank and the government (Ministry of Finance). This mediation should find a balance between two contradictory goals: promoting employment (which means stimulating economic growth) and controlling inflation (which means preventing excessive economic growth). This chapter does not directly mention the guiding significance of this chapter for investment practice. However, readers must understand the existence of government countercyclical mediation in order to understand the macro-economic analysis.
This chapter tells us that the profit cycle of an enterprise generally follows the economic cycle, but the fluctuation range is much larger than the economic cycle. The reason is that some attributes of enterprises are strongly related to the economic cycle, while others are irrelevant. Enterprises will also use financial leverage, and leverage will amplify fluctuations.
The author gives an example to illustrate how rare it is when the market is in a "normal" state: the long-term annual return rate of the S&P 5 is about 1%, however, in only three of the 47 complete years, the stock market return rate is in the range of 8-12%, and other times it is "abnormal". The so-called normality is actually abnormal. The fluctuation of external factors is very small, which causes such violent fluctuations. The author explains it as the psychological and emotional pendulum of investors.
The bottom of greed and fear is optimism and pessimism. When the market is full of optimism, it can also be considered that people are becoming greedy.
When optimistic, people interpret all news as positive:
The author has spent some space on "risk premium", and investors with a little experience should be familiar with this concept.
investors can find n reasons for rising and 2n reasons for "impossible to fall", but rational investors will know that there will be a big drop after a big rise, and there will be nothing but a big rise.
"If you refuse to associate with most investors and do not participate in a carefree and risk-free market, like today's market, after a period of time, you will suffer a double blow: First, from the performance point of view, you are a big loser and lost the game; Second, from the point of view of the group, you are like an old man who is behind the times and has lost face. However, it's no big deal to pay these two prices, as long as you are still there (the money is still there)-others eventually lose their money, and people are gone. "
The main purpose of this chapter is to talk about investors' risk attitude, and to tell specific examples in the 28 economic crisis. It seems hard to imagine that people will be optimistic or pessimistic to that extent, but it actually happened, and it happened to institutional investors. Looking back on 22, the "holding a group" of institutional investors is such an act. In that environment at that time, investors may think: now that the global water is released, the rise of core assets is inevitable; Fund managers are optimistic about core assets, and they can't be wrong; However, few people would think that this is only a collective psychological and emotional cycle of institutional investors. In 221, it was once again proved that the tree would not rise to fill in, and asset prices returned to the average.
the credit cycle mentioned in this chapter is the capital market cycle. The author thinks it is not very important to distinguish the two. Credit generally refers to debt financing, while capital market includes equity financing and debt financing.
The economy fluctuates a little, and the fluctuation of corporate profits is only slightly larger than that of the economy. The fluctuation of visible credit greatly exceeds the fluctuation of the economy and corporate profits, and the credit window is wide and suddenly closed. The author attributes this phenomenon to people's psychological fluctuations, especially the far-reaching influence of psychological fluctuations on the tightness of financing.
"Your participation in the investment field where everyone is scrambling to throw money into it means that you have embarked on a road that will inevitably lead to disaster."
The author believes that the financial crisis in 28 was almost entirely triggered by events in the financial market, and none of the main reasons were caused by the economy or other aspects. The most fundamental reason is that investors are too tolerant of financial risks. In those years, there was no great prosperity of the whole economic system, and there was no general increase in corporate profits. It is entirely endogenous to the financial system and the credit cycle.
the author has a summary of the process of the financial crisis, but before reading this summary, we need to understand what Mortgage Backed Security, MBS) is. For example, a bank that provides mortgage loans issues a loan with an annual interest rate of 1%, and then sells it as an annual interest rate securities product of 8%. In this way, the bank ate the interest difference of 2% and did not occupy the funds (the loan was actually paid by the mbs buyer).
Let's briefly sort out the process of this crisis:
The formation of the crisis: investors' attitude towards financial risks is too tolerant+the Federal Reserve cuts interest rates-"MBS sells in a big way, and the demand is strong-"Banks sell MBS vigorously regardless of risks, and even give loans to lenders (subprime lenders) who should not have obtained loans-"MBS needs to be rated, and rating agencies compete bottom by bottom for profit. The rating becomes unreliable-"Some banks also borrow at low interest rates, and then buy the mbs of those subprime loans to obtain the interest difference (banks also ignore the risks)
The outbreak of the crisis: some subprime lenders default+house prices fall (both of which may occur at the same time, which may be for each other's reasons)-"Banks can only receive devalued house property rights and bear heavy losses-"A large number of mbs default, causing the market price of mbs to plummet, further leading to the liquidity of MBS to dry up. -"coincides with the introduction of new regulations, requiring banks' assets to be priced according to market value, and the sharp drop in the price of mbs will lead to the rapid shrinkage of bank's book assets, and investors will sell a lot of bank shares when they see the financial report-"Bank crisis, Lehman Brothers bankruptcy-"will cause greater panic, and the crisis will extend to assets other than mbs, except for the collapse of all assets prices of gold and national debt-"Leveraged investors are required to add margin by banks. But at this time, everyone had no money, so the bank had to liquidate its position, which further increased the downward pressure on prices.
-"All investors don't want to provide new investment, and no one can get financing, even those industries that have nothing to do with real estate. -The whole economy contracted, that is, the Great Depression
recovered: all over-leveraged funds were dumped-The price of fixed-income securities fell to the bottom-Investors said that "it couldn't be worse"-"All sellers have sold what they can, and prices can't fall-"Optimism rose and asset prices rose again.
the Dow Jones index peaked in October 217 (1428) and bottomed out in March 219 (644), down about 55%.
The author concludes: "The ultimate purpose of this book is not to help you understand the cause and effect after the cycle occurs. On the contrary, the ultimate goal of this book is to make you feel that we are now in various cycles and analyze the actions that should be taken on this basis. " The key is to identify the peaks and valleys of the credit cycle. At the peak, financing becomes cheap, money can be found everywhere, and risk appetite is reduced; At the bottom of the valley, it is the opposite. I think the bond market should also be an observation indicator.
The bad creditor's rights invested by the author are "good enterprises and bad finances". There is nothing wrong with the business of the enterprise itself, except that the debt burden is too heavy and it has encountered financial difficulties. This can be used as the basic principle of investment when investing in convertible bonds.
The bad debt cycle described by the author in this chapter is basically similar to the credit cycle in Chapter 9. At the end of this chapter, the author integrates economic cycle, investor's psychological and emotional cycle, risk attitude cycle and credit cycle to explain their interaction. Basically, these cycles act on the upper cycle from the bottom up in the order just described.
The real estate cycle is similar to other cycles, but the real estate cycle also contains an element that other cycles do not have. This special element is that the real estate development cycle is very long. This factor leads to two consequences. First, the economic situation when developing real estate and selling real estate may be completely different; Second, when developers decide to invest, they don't know how many houses other developers are developing (this is different from the securities market, and the supply of competitors can be known immediately). The real estate cycle should pay special attention to this lag.
In this chapter, the author also talks about the real estate example, and investors are often influenced by overly optimistic statements. There are many reasons to support the rise of assets, but no matter how correct these reasons seem, there is no guarantee that your investment will not lose money. Because if the cost of investment is too high, no reason will work. Too much rise is the only reason to fall.
There is not much new content in this chapter, but you should read it from time to time to remind yourself not to trust the assets that will rise forever and not to surrender when you shouldn't.
the most annoying and headache thing is to see a friend make a fortune. It's so true. The psychology of chasing up comes from this. Seeing that my friend bought stocks and made a fortune, I was afraid that this trend would continue and my own pain would continue. As a result, investors surrendered, they joined the market and ended their pain.
The author provides a table, which can not be quantified, but at least can make some rough judgments and find a sense of where the market is.
The key issues can be summed up in two aspects: how to price assets and how investors around them behave. The first one can be quantified, such as PE indicators and interest rates; The second one can't be quantified, so we need to pay attention to news and forums. The implied volatility of options can also be used as an emotional indicator of the market.
Assessing where we are in the cycle does not tell us what will happen next, but only what is more likely and less likely to happen.
Some viewpoints mentioned in this chapter may be considered as "correct nonsense" by most investors, but I think it should still be recalled from time to time:
For those readers who want to get a definite method to evaluate the cycle position, they may be disappointed after reading this chapter. Because the author has no such method. There are more elements of art in judging the cycle. But if readers can keep in mind the author's experience based on his investment experience in the past 5 years, they may make fewer mistakes.
The author thinks that excellent investors have two qualities: the ability of cycle positioning and the ability of asset selection. Most people don't have these two abilities. It is not easy to locate the big cycle, and it is not easy to understand the fundamentals of assets, so it is difficult to invest.
the core point of this chapter is that it is difficult to locate the cycle (yes, the author himself said that.