Let’s talk about the three phases of stock price decline: 'valuation kill, performance kill, and logic kill': 1. Valuation kill refers to when a stock’s price is excessively overvalued due to market sentiment, short-term speculation, etc., deviating significantly from the company’s actual value. The stock price then corrects to a reasonable level. For example, a company with solid fundamentals might see its stock price pushed up by market hype. When market sentiment shifts, the stock price drops to return to a fair valuation. This type of decline is short-term, and once the valuation returns to a reasonable level, many funds may jump back in. 2. Performance kill happens when a company’s actual performance falls short of market expectations, such as declining net profits or slowing growth rates. If performance misses expectations severely, or even reverses growth, it can trigger a major shock, damaging investor confidence and causing the stock price to drop. At this point, it’s crucial to analyze the reasons behind the performance decline. It could be due to short-term factors (like industry cycles or policy adjustments) or long-term issues (like intensified competition or poor management). If the performance decline is temporary and the company’s fundamentals remain intact, the stock price might rebound once performance improves. However, if performance continues to deteriorate, caution is needed, as this could lead to the logic kill phase. 3. Logic kill refers to when the core investment logic of a company or industry is disrupted, such as major policy changes, failed technological paths, or unsustainable business models. For example, an industry might lose its future growth prospects due to policy restrictions, technological replacements (like breakthroughs in new energy battery technology), or changes in consumer habits, leading to a sharp and potentially prolonged stock price decline. Take Meta in 2022 as an example: its massive losses in the metaverse turned a performance kill into a logic kill. Eventually, it managed to reverse the situation with AI. Logic kill is the most devastating, as it shakes the very foundation of the investment thesis. The impact on stock prices is often deeper and longer-lasting. At this stage, it’s crucial to carefully assess whether the long-term trend has fundamentally changed. To sum up: - Valuation kill is a short-term deviation between price and value. - Performance kill is a short-term fluctuation in fundamentals. - Logic kill is a fundamental shake-up of the investment logic. When facing market corrections, for stocks with solid fundamentals, it’s important to predict which factor is causing the price adjustment. This determines whether to hedge and buy the dip or patiently wait for the right opportunity after a misjudged sell-off.