When others are afraid, I am afraid too

Liam Zhou   2018-06-28 本文章163阅读

"Be fearful when others are greedy and greedy when others are fearful." Buffett's famous quote is known to all investors. When the market is low, it is quite sensitive to little negative news but lack of response to positive one. When people think the market has reached bottom with firm support, it can still hit new lows. When people believe they bought stock at very low price, but even lower price persistently causing big losses. At this moment, who can truly "be greedy when others are fearful"?


It’s our instinct that emotions are not completely controlled by the brain. Losses will bring anxiety, suffering, and fear, and this psychological burden will accumulate over time until unbearable. When the market has been depressed for a long time and there is no sign of profit, the panic selling will come. In the stock market, emotions are contagious, which leads to one person is fearful, all are fearful.


When others are fearful, I am fearful too. Having investing in China stock market for more than 20 years, I still have the same emotional response. But I will not be dominated by emotions and sell stocks at a low. I can firmly hold my position, not free of fear, but convincing myself with rational analysis and overcome anxiety and fear.


Confidence in stocks we hold. We cautiously expecting the bear market in the past two years. After analyzing the structure of market supply and demand, scarcity, allocation, valuation and market sentiment, we are only willing to hold the large blue-chips with low valuation, including leading companies in banking, insurance, real estate and consumer sectors. We comparing them with A shares companies, and also with Hong Kong listed companies, American companies and listed companies in global stock markets. Overall, our holdings have strong competitive advantage, in terms of big margin of safety and higher risk return ratio. Falling share prices will improve the advantages of these stocks, that is why we facing fear every day, but still hold high positions.


Confidence in our investment strategy. Volatility is the basic characteristic of the stock market, and also the basic characteristic of all equity funds. Over the past decade, we have also suffered losses from time to time, even loss for a while. But in retrospect, the losses are temporary, and NAV will finally hit a new high. This has been the case in the past ten years, and we think it will be the same in the next ten years. "Looking for the misunderstanding of most people and the inefficiency spots in the market" is our investment philosophy and strategy. Regardless of market cycle or style shifting, the validity of this philosophy and strategy will be constantly proved by our raising NAV.


Confidence in China. New tariffs, chip export bans and technological restrictions have added pressure on China particularly in high-tech fields. Since the Cold War to 1996 Wassenaar Arrangement then up to now, western countries have been constantly limiting high-tech exports to China. However, is the technological gap between China and the West widening or narrowing? The Chinese people's diligence, the emphaisis on education, the government's ability to allocate national resources, and the rapid economic and social development in the past 30 years explains our confidence in China. China grows amid all kinds of restrictions in the past, and now China's industrial output has exceeded the combined value of the United States and Japan. We are confident that the development of high-tech in China will be realized by time.


GEM index has hit a new low since 2015, and the SSE Index has hit a new low in recent two years. During the market downturn, most people see pessimism, however, we see hopes.