Duan Yongping: Investment Strategies for Bull and Bear Markets 01 Doing the right thing should always be the top priority. In terms of investing, it's best not to touch companies whose future prospects you can't understand over 5 or 10 years. I've never seen anyone sell a business during a bull market and buy it back during a bear market! 02 Personally, I don't think the terms "bull market" and "bear market" are appropriate for value investing. In fact, no one truly knows when a bull market or a bear market will occur (although many do know in hindsight), and most people lose money in both bull and bear markets. 03 Bull and bear markets are just market perceptions. The most important, and arguably the only, thing in investing is understanding a company's future. If you don't understand it, stay out of it; betting on a bull or bear market is dangerous. Notes: A "bull market," also known as a bullish market, refers to a prolonged period of generally rising market prices; a "bear market," also known as a bearish market, refers to a prolonged period of generally falling market prices. The notion of bull and bear markets is hindsight; no one can predict them, or at least half of people can, but no one knows beforehand which half will be right. Value investing only considers whether a stock is cheap or not, regardless of what others think, so that shouldn't be taken into account. 04 The concept of bull and bear markets relies on observing the performance of others (or the market). This approach can sometimes be correct because stocks are often cheap during a bear market, increasing the probability of buying undervalued stocks. Investing fully in companies you understand and like when they are cheap is often the right move, regardless of whether it's a bull or bear market, although it may seem somewhat related. Notes: Right business, right people, right price, and bull and bear markets are not necessarily related, but the probability of a right price appearing is indeed much higher during a bear market than in a bull market. However, when a right price appears, the buyer doesn't need to know whether it's a bull or bear market. 05 What's the difference between investing and speculating? —Is investing like farming, and speculating like hunting? But sometimes, speculative hunting results in being killed by the prey. Speculation is a zero-sum game; everyone is prey to each other. Investing is very much like farming—a process of building a stronghold and fighting a protracted battle, so investors are like farmers. Speculation, on the other hand, is like hunting—a zero-sum game where speculators are prey to each other, making it extremely exciting. Speculation is an exciting game, and those who enjoy it should only proceed within their means; investing is a joyful experience, and investors can slowly savor the process. I have a very simple way to distinguish between investing and speculating: at the current price, would you still buy this company if it weren't a publicly listed company? If you decide to buy, that's investing; if you wouldn't buy it if it weren't a publicly listed company, that's speculation. Notes: Investing and speculation share the same goal—to make money—but their mindsets are completely different. Speculation relies more on prediction and intuition, while investing is more based on experience and facts. Therefore, value investors are less concerned about market fluctuations. 06 Why is it said that "buying stocks is buying a company, buying future cash flow"? —If people aren't buying "future cash flow," then what are they actually buying? Those not buying "future cash flow" are likely entering a zero-sum game, where everyone is hunter and prey, and it's a competition of "skill." Even "experts" can be easily defeated by "newbies." 07 When it comes to "don't do what you don't understand," what constitutes true understanding? —I believe "understanding" isn't an absolute concept; it's more like a rough estimate. Only you truly know if you understand; it's difficult for others to judge. From an investment perspective, when you feel genuinely unaffected when the stocks you bought drop, you probably understand (not referring to psychological factors). Otherwise, you might be speculating (especially when you feel fear). Notes: This is a major difference between investing and speculating. Many reasons for speculation are heavily influenced by the opinions of others in the market, and these opinions (market opinions) can change rapidly. Therefore, speculators may need to adjust their strategies daily based on changes in their speculative rationale. 08 I really dislike people who call company stock "tickets." It shows a complete lack of respect or affection for the companies they invest in. People who call companies "tickets" are probably speculators at heart; they don't really care about 10 or 20 years, so it's pointless to say anything. 09 How to understand the saying, "Knowing when to buy is for apprentices, knowing when to sell is for masters"? — I think this is speculation. Actually, knowing when to buy and knowing when to sell are one and the same thing for value investing. Seeing them as two separate things indicates a speculative element. Notes: Holding is equivalent to buying, so in the eyes of value investors, buying and selling are the same thing because what determines buying and selling is a company's intrinsic value or discounted future cash flows, not its price. 10 A long time ago, someone told me that the stock market is a casino. I said no, but he insisted it was. I suddenly realized: for those who say the stock market is a casino, it is a casino! 11 Does investing require talent? — I've never met anyone who is born a natural investor, but I've met many people who love speculation. If you're an investor, you focus on how your assets grow; if you're a speculator, you're always concerned about how market prices will fluctuate. That's not our game. (Warren Buffett) 12 What is "investment"? — To me, investment is owning part or all of a company; the simplest concept is "ownership." 13 How do you distinguish between investment and speculation in terms of behavior? First, are you using a large sum of money or a small sum? In my view, speculation is a bit like playing in a casino; you can't bet heavily, and you can't win big. The concept of investment is that you can bet heavily; without a high degree of certainty, such as around 90%, you shouldn't act. Second, when stock prices fall, the attitudes of speculators and investors are exactly opposite. Investors are often happy to see stock prices fall because they have the opportunity to buy something cheaper, while speculators think that something must have happened to the company and they should get out quickly. Notes: Although investment and speculation are different games, they look very similar. Like in Macau, the casino owners are investors, and the gamblers are speculators. Casinos always have a steady stream of customers because there are always gamblers who win money, and those who win are the loudest.