Market Recovery: Timing Your Entry

The capricious nature of market emotions captivates investors!

After experiencing a significant dip shortly after the New Year, the Shanghai Composite Index rebounded strongly last weekRecent data indicates a 2.31% rise in the Shanghai Index, a 3.73% gain in the Shenzhen Component Index, and a 4.66% increase in the ChiNext Index, pointing toward renewed investor optimism.

So how can savvy investors avoid being swayed by the ever-changing moods of the market? The answer lies in the old adage of "buy low, sell high." Insights such as “buy during the cannon fire and sell at the sound of the horn” or “the best buying times occur during the bleakest moments of pessimism” reveal timeless wisdom

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While straightforward, these principles can lead to a lifetime of positive outcomes for those who adhere to them.

However, discerning what constitutes “low” and “high” is also a test of an investor's acumenNotably, when the overall dividend yield of the market exceeds 3%, well above the risk-free rate, it may signal a potential market bottom—particularly when large-scale industrial capital buys into the market amidst significant pessimism.

While short-term fluctuations in stock markets are dictated by the collective actions of myriad investors and are inherently unpredictable, those who hold quality stocks with a long-term perspective are ultimately poised to reap the rewards.

Examining global markets, one finds that the investment strategies in stocks resonate with the fundamental principles of real-world business

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The age-old wisdom that encapsulates these ideas is clear: during times of crisis when "blood runs in the streets," that’s when one should buy, reinforcing the principle of "buying low and selling high."

Charlie Munger shared a family anecdote that perfectly illustrates such wisdom: his great-grandfather was one of the first settlers in Iowa, who fought in the Black Hawk WarAfter a lifetime of hard work, he became the wealthiest individual in his town, owning vast tracts of land and even establishing a bankHis great-grandfather purchased large expanses of fertile black soil at remarkably low prices.

Munger recounted that during economic downturns, while others panicked and sold, his great-grandfather bought up additional land at low prices

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He then rented out these properties to hardworking German immigrants, yielding a steady income that laid the foundation for a prosperous life through a few precise "buy low" decisions.

Renowned "contrarian investor" John Templeton reflected on his father's business strategies amid the fluctuations of Tennessee's agricultural economyHis father astutely seized opportunities, purchasing farms that were auctioned off for unpaid property taxes at exceptionally low prices, then reselling them days later for a profit.

Growing up with his father's enterprise profoundly shaped Templeton’s perception of debt risk, especially as he witnessed many farmers lose their properties during auctionsYet, the thrill and potential profit inherent in his father's business instilled a keen investment sensibility in him

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Templeton famously stated, "The optimal time to buy is when pessimism is at its peak; at that point, most problems can be resolved."

In 1973, Jim Rogers and George Soros established a hedge fund aimed at investing in overlooked and undervalued stocks and commodities, achieving astounding success with a staggering 4200% return over a decadeThey even capitalized on panic selling following Japan's massive earthquake, which yielded impressive profits.

Rogers proclaimed that investing isn’t an overwhelming endeavor; while there’s no "surefire" method for success, the fundamental principle remains "buy low, sell high." Yet, only a handful succeed in executing this effectivelyMost people gravitate towards the spectacle of bull markets, often neglecting opportunities amid bear markets

It is a common scenario where, as prices soar and stocks shoot up, investors flock to buy in hopes of not missing the boat.

Conversely, I focus on bear markets, seeking undervalued stocks during downturnsWhen excitement prevails, I remain composed, awaiting the right moment; and when markets falter and everyone else is ensnared in despair, that is when I sharpen my focus for potential opportunities,” emphasized Rogers.

If an asset possesses no inherent value, it holds no potential for investment benefit, regardless of how dire the circumstances appear; assets comparable to Ponzi schemes are doomed to either hold no value or face extinctionSuccessful investing not only requires the fortitude to buy amid turmoil, it also necessitates the intelligence to accurately ascertain value.

The criteria for judging value in the stock market mirror that of the tangible business world

Essentially, stocks are representations of ownership in publicly traded companies, rather than mere numbers for speculationAssessing the value of a company’s stock hinges on the willingness to purchase the entire company at its current market value, which serves as the fundamental law for valuation.

From a practical perspective, a stable company delivering a 3% dividend yield is a solid investment option given the current interest rate landscapeHistorically, in developed markets spanning 200 years, whenever the dividend yield associated with indices reaches 3%, the stock market transitions into a value zone.

As of January 14, the Shanghai Composite Index reflected a dividend yield of 2.85%, the Dividend Index indicated a yield of 5.38%, and the Shanghai 50 Index posted a yield of 3.72%. Notably, about half of the constituent stocks of the Shanghai 50 Index boast dividend yields exceeding 3%, showcasing a historical record of dividend distribution, stable revenue, and cash flow, making up the economic backbone of China.

Meanwhile, industrial capital demonstrates keen insight and holds significant reference for evaluating both its own value and that of peers

Over the past four years of a declining stock market, there has been approximately 200 billion yuan allocated to share buybacks, with more plannedSuch repurchases have bolstered shareholder confidence and improved earnings per share consistentlyFor instance, Gree Electric has repurchased shares worth around 30 billion yuan since 2021, while Midea Group has engaged in buybacks totaling about 14 billion yuan; thanks to these aggressive repurchase strategies and generous dividends, both appliance giants have seen their stock prices near historical highs.

Exceptional investors do not shy away from bear markets but rather view them as opportunities to buyA bear market is hardly an abyss; when the value of the investment is clear, they are willing to make buys amidst the turmoilThey have managed to transcend the herd mentality