tech

The investment treasure of trading "weak"

2024-03-16

Wahaha originated from grassroots sales, achieving a 370-fold increase in 9 years during the retail period, and was later spotted by the public fund giant Qiu Guolu, becoming the general manager of a certain asset company, managing a fund size of nearly 40 billion. Such a legendary story belongs to Feng Liu, who came from the grassroots of A-shares. He achieved financial freedom through stock speculation and ultimately made a counterattack to become a star private equity manager.

In addition to the astonishing performance, Feng Liu's investment philosophy formed through the ups and downs in the market is also worth learning from for retail investors. Especially the "weak investor system," it can be said to be a theoretical system that opens up a school for retail investment philosophy. To get to the point, let's now understand Feng Liu's weak investor system.

Advertisement

I. Why use the weak system

According to Feng Liu himself, the weak system is to assume that he is at the worst level in the market in terms of information acquisition, depth of understanding, time and energy, emotional control, and interpersonal resources, and can only rely on time, odds, and common sense.

This concept does not deliberately make up for the gap, on the contrary, it emphasizes going with the flow, admitting that he is just a retail investor, admitting that he is a weak person. 99% of ordinary people lack systematic industry and financial knowledge, do not have professional team support, cannot do regular on-site research, and cannot be close to industry executives.

The weak system can be said to have painted a portrait for ordinary investors, telling us how to invest. The weak system provides a possibility for every retail investor. But it is definitely not to let you lie down directly, but to find the right entry point and turn passivity into initiative.

II. How the weak system invests

The weak are by no means useless, the advantage of the weak lies in their more rational and patient than the market, which is the most powerful weapon for weak value investors to defeat the market. The strong need in-depth research to eliminate blind spots, to see all aspects, while the weak can only see what is presented. Specifically, the "weak" can invest and trade in the following aspects:1. Common Sense and Time. The weak can first rely on common sense and objective facts to make market judgments, as common sense is usually not wrong. Secondly, the weak should be more patient than the market and not rush to trade at a moment's notice. The weak should also constantly question and challenge, making fewer proactive logical judgments. This can avoid blindly following the market due to insufficient cognition, and also avoid many losses.

2. Prudent Valuation. Valuation is inherently vague. When assuming oneself as the weak, most of the time, one should not assertively claim that a stock is undervalued or overvalued, because most of the time the market is very efficient. In summary, the weak should make as few proactive value judgments as possible.

3. Contrarian Investment. Contrarian investment is to help the weak avoid their shortcomings and leverage their strengths. Compared to the market, it is difficult for the weak to surpass the market in cognition. The market is short-sighted, while the weak can take advantage of the time advantage and patiently wait for the performance to improve.

4. Diversified Investment. Assuming the weak cannot fully understand a company, it is impossible to invest all funds in a single company. Before investing, the weak should always assume that they will inevitably make mistakes, and the probability of making mistakes varies. Therefore, the weak must roughly assess the probability of making mistakes and the potential losses that may occur, and then take protective measures in advance. The main protective measure here is diversifying positions to reduce risk.

III. Differences between the Strong and Weak Systems

Whether it is a strong or weak mindset, both are based on the fundamentals of the enterprise for value investment, so there is no absolute right or wrong between the two. The key lies in what the investor likes and what suits them. However, there are many differences between the strong and the weak in many aspects, specifically the following:

1. The strong pay more attention to in-depth research, hoping to profit by defeating the market in cognition. The strong need to find the market's mistakes in pricing the enterprise, so they pay more attention to the study of the enterprise. However, weak investors find it difficult to surpass the market in their research on the enterprise and cannot correctly value it, so they do not value in-depth fundamental research as much as the strong, nor do they expect to surpass the market in cognition.

2. The strong have an offensive mindset, while the weak have a defensive mindset. The strong need to make a lot of proactive judgments and make investment decisions based on them. The weak, on the other hand, put themselves more in a defensive position, acknowledging their ignorance, so they will not make proactive judgments on many things, emphasizing making fewer mistakes, and even if they make mistakes, they will not cause serious damage.

3. The strong believe that the market is often ineffective and often refute the market, while the weak do the opposite. The strong will go against the market sentiment and often refute the market's cognition, essentially believing that the market is very ineffective. The weak, on the other hand, put themselves on the side of ignorance, deliberately avoiding such confrontational debates.4. Strong investors may not necessarily diversify their holdings, but weak investors will inevitably diversify. Weak investors believe that their understanding is limited and they cannot fully understand any company, so they diversify their holdings. On the contrary, strong investors are more aggressive. In theory, strong investors can achieve higher returns, but in practice, weak investors are not necessarily slower. Many times, weak investors can ensure a longer and more stable return because they make fewer mistakes.

IV. Advantages of the Weak Investor System

1. The weak investor mindset may be closer to objective facts and the truth. The weak investor assumes that they are weaker in obtaining information than smart people and that they cannot fully understand a company, which reflects the weak investor's reverence for the market and the unknown. Although the market is often irrational, it is mostly superior to individuals in cognition. Assuming oneself as a weak player in the market is a way to objectively recognize oneself and the market, and it can also reduce the probability of trading mistakes.

2. The weak investor mindset can expand the circle of competence. Strong investors must conduct in-depth research on companies to surpass market cognition, so they must emphasize the principle of the circle of competence. Strong investors will track and study for a long time in order to defeat the market; while weak investors only look at the big logic and do not conduct in-depth research. Therefore, weak investors can look at more companies. Due to the difficulty, strong investors sometimes have to give up researching certain companies, but weak investors can participate appropriately after understanding the big logic.

3. Break free from the shackles of valuation. Weak investors assume that they cannot value a company, so they will not refute market cognition. Weak investors will not buy mediocre companies just because they are cheap, and they appropriately ignore valuation to buy the strongest companies in terms of fundamentals. Even if they do not emphasize the importance of valuation and buy in line with market sentiment, it is still difficult to get a bargain. Therefore, weak investors will choose good companies more and operate against market sentiment.

4. The weak investor mindset requires less from investors, saving effort and worry. The threshold for the weak investor mindset is high, but it requires less from investors when used. Weak investors only need to follow the market and choose the good companies selected by the market. The big logic of these good companies often remains unchanged for many years, so weak investors do not need to track short-term operational data too much. From this perspective, the weak investor mindset is a more worry-free and effort-saving investment method.

5. Weak investors pay attention to defense, but the actual return rate is not low. The weak investor mindset is a defensive investment mindset. In order to survive in this market, they have to give up some opportunities for excess returns. But because it is defensive, weak investors rarely cause losses to the entire situation due to partial mistakes, and weak investors often choose companies with greater flexibility and higher valuations, which makes it easier to achieve returns that exceed the market.