The Three Major Disciplines - The Most Awesome Cryptocurrency Exchange Platform

Investing is actually a game with limited gains if you get it right,

and the most you can lose is your entire principal if you get it wrong.

Therefore, the core of investing is how to determine the safety margin,

and how to protect your principal from losses.

Speculation, on the other hand, pursues high expected returns,

so its focus is on upward potential,

while downward losses can be locked in through strict stop-loss strategies.

As a person with limited ability,

and with a clear disadvantage in information compared to institutional players,

if you want to survive long-term in the market and achieve certain returns,

you must have your own system.

Many people might hear the word “system” and think,

first reaction: scam.

Indeed,

most of the systems touted in the market are scams,

I have also been a victim,

losing my tuition fees.

But a system is just a term,

it does not inherently carry evil attributes.

A system is a set of rules for stock selection and trading.

If someone talks about a system but does not have clear, actionable rules for stock picking and trading,

and instead emphasizes feelings and art,

they can basically be classified as a scammer.

Since it is a rule,

it will definitely evolve continuously with increasing understanding.

It’s like the more you suffer losses,

the more patches you apply.

Over the years of stepping into various pits,

after summarizing,

I set three major disciplines for myself.

Money can never be fully earned,

but it can be lost very quickly,

so I remind myself to avoid pitfalls in the future,

completely avoiding all pitfalls is impossible.

Discipline 1: Do not buy any companies in a down cycle,

no matter how great or cheap they seem.

This type of pit has been repeatedly fallen into many times,

repeating the same mistakes.

Part of it is due to poor ability to see that a company is in a down cycle,

and static analysis makes it seem cheap.

Another part is knowing the industry is in decline,

but blindly believing that the company’s position in the supply chain is strong,

and thus unaffected.

But what needs attention here is,

the product differentiation of branded consumer goods companies may not be synchronized with the industry cycle.

Because manufacturing companies are just one link in a very long industrial chain,

while many branded consumer goods have relatively short chains.

For example, Baijiu,

upstream is grain,

downstream are distributors, and some companies can even connect directly with consumers.

Additionally, it’s important to distinguish between a one-time black swan impact,

and the industry’s inherent decline.

A cycle lasts at least three years,

so a one-time event affecting only one or two quarters’ performance will not change the overall trend of the cycle.

Stock selection is the top priority in investing,

whether you can pick the right companies already determines if you profit or lose.

And stock selection is also the first step in investing,

so this should be the first discipline.

Discipline 2: Do not buy stocks in a downward trend,

no matter how attractive the price looks,

or how excellent the company is.

I expect this point will be heavily criticized.

But this is the experience summary from years of being a rookie investor.

Value investing is what I aspire to,

but can my ability support me in opposing market consensus? Do I have lagging information compared to institutions and insiders? If the stock price keeps falling,

do I have enough cash to add positions?

Feng Liu’s “Weakness System” has been popular among many in recent years,

but also criticized by many.

My understanding of the Weakness System is to respect the market,

not to be arrogant,

not to think I have mastered truths that the market does not know.

The first discipline is about stock selection.

Once you have chosen stocks, you naturally need to trade.

So the second is about timing the buy.

The first is a subjective judgment that the company is not in a down cycle,

but is that judgment always correct?

There are several possibilities: a. The company is in a down period or about to enter one,

which means the judgment was wrong.

In this case, respecting the market and not buying can successfully avoid a big pit.

b. The company is not in a down cycle,

but the market is in a bear phase.

In this case, waiting and not catching falling knives is definitely beneficial.

c. The company is not in a down cycle,

but the persistent decline in stock price triggers reflexivity,

leading to a downturn in the company’s operating cycle.

This should also be avoided.

d. The company’s cycle is declining,

but the stock price is trending upward.

In this case, it means your judgment was wrong,

and the market was wrong too,

and you should cut losses when you realize it.

But I believe the probability of this happening is very low.

So when exactly should you buy? One scenario is when the stock price has been consolidating for a long time,

and you see the company’s operating cycle about to turn upward, then you can buy on dips within the range.

Another scenario is when the stock price rebounds after being oversold,

and after confirming the cycle is upward,

wait for the upward trend to establish before buying on pullbacks.

This situation is a bit more difficult.

But since it’s a cycle reversal,

losing twenty or thirty points of gains doesn’t affect the final return rate.

In fact, buying at the lowest point is often the root of many losses.

Discipline 3: Do not concentrate your holdings in a single company or industry,

no more than 30% in a single industry,

and no more than 20% in a single company.

Once you have selected the right companies,

and determined the buy timing,

the remaining question is how much to buy.

Buying too little of good companies will obviously reduce returns.

But buying too many of the wrong companies can lead to permanent principal loss or even destruction.

To protect the principal,

I am willing to accept lower returns.

This discipline has never been violated,

and it’s also one reason why, despite countless pitfalls over the years,

my principal has not ultimately been lost.

Finally,

all these disciplines are designed to address the issue of limited ability.

If one day,

I can reach the level of veteran retail investors,

like Brother Accountant or Brother Missed Work,

then these disciplines will no longer be meaningful.