Why is there almost no value investment in A-shares? First, tell a classic story to the brothers. In 2003, Buffett spent $500 million to buy H shares of PetroChina. At that time, the price to earnings ratio was extremely low and the dividend yield was attractive, making it a typical value depression. In 2007, the stock price increased several times, and Buffett sold it in batches, earning approximately $3.5 billion. In the same year, PetroChina's A-share market went public with an opening price of 48.6 yuan, which was three times the issue price. And then? It fell all the way to a low of over 4 yuan. If you buy and hold for more than ten years on the day of listing, and lose more than 90%. The same company is also a 'value investment'. Buffett earns seven times, while A-share investors lose 90%. Where is the problem? It's not as simple as 48 yuan being too expensive. The deeper question is: why can PetroChina be listed on the A-share market at such an outrageous price? Why does the market give such pricing? Many people think that A-shares are a "retail market" and therefore speculate. That's half right. Looking at the number of accounts, retail investors indeed account for over 99%, while institutional accounts account for less than 0.3%. But looking at the stock market value, retail investors only account for about 30%, while the remaining 70% are institutions, legal persons, and foreign investors. That is to say, the pricing power of A-shares actually lies in the hands of institutions. Retail investors are more likely to follow the trend, be harvested, and provide liquidity. That's the question: Since institutions dominate, why are A-shares still so speculative? The answer is: Institutions also want to do value investing, but the environment does not allow it. The assessment cycle for public funds is usually one year, or even shorter. Fund managers are ranked lower this year and may have to leave next year. Do you want him to invest in value? He bought an undervalued stock and it took him three years to rise. In the first year, he was fired because his performance was at the bottom. What does it have to do with him when it rises three years later? So the rational choice for public fundraising is to follow hot topics, focus on short-term performance, and achieve good results. It's not that they don't understand value, it's the assessment mechanism that forces them. Private equity is better, but it also requires a beautiful net asset value curve. Value investing inevitably has fluctuations, drawdowns, and waiting periods, and such curves cannot be created. So many private equity firms also focus on trends, quantification, and arbitrage. It's not that institutions don't want value investing, it's that the entire ecosystem doesn't support it. The deeper reason is the underlying design of A-shares. A-shares were born in the early 1990s with the primary purpose of helping state-owned enterprises raise funds and overcome difficulties. There are a lot of bad debts in banks, and the stock market is a new financing channel for enterprises. This positioning has lasted for over thirty years. Until today, the stock market is primarily a financing tool, followed by an investment venue. When it comes to IPOs, regulators are most concerned about whether the issuer can successfully raise funds. The policy starting point is mostly "supporting the real economy" and "assisting enterprises in financing". What about the interests of investors? I have considered it, but the priority is not that high. The direct consequence of this positioning is that the interests of listed companies and shareholders often conflict, and policies tend to protect listed companies in times of conflict. 5/For example: additional issuance. The threshold for A-share companies to issue shares is very low, and the approval process is relatively relaxed. Is the company short of money? Additional issuance. Want to acquire assets? Additional issuance. Want to diversify? Additional issuance. Each additional issuance dilutes the original shareholder's equity. Many of the additional funds have unclear destinations, low efficiency in use, and some have even been indirectly embezzled by major shareholders. What can investors do? Almost powerless. Another example: delisting. The premise of value investing is that 'poor companies will be eliminated'. But the long-term average delisting rate of A-shares is only around 0.33%. The delisting rate of US stocks ranges from 2% to 7%. The garbage companies in A-shares will hardly disappear, they will always float in the market and occasionally be hyped up. You hold onto a good company and wait for growth, while others hold onto junk stocks and double in a week. Can your mentality not collapse? In A-shares, many times what you buy is not a company, but a bargaining chip. The rise and fall of stock prices are not closely related to the company's fundamentals, but more closely related to financial games, emotional fluctuations, and policy trends. The money you earn does not come from the value created by the company, but from the higher price that the next buyer is willing to offer. This is the essence of speculation. Why is that? Because the rights of A-share shareholders are too weak. US shareholders can file a class action lawsuit and change management. What about A-shares? It is very common for major shareholders to hold a dominant position, while small and medium-sized shareholders have almost zero say. Are you dissatisfied with the management? Vote against it? They don't care at all. prosecution? High cost, long cycle, and difficult to execute even if you win. There are various methods used by major shareholders to embezzle listed companies, such as related party transactions, fund occupation, illegal guarantees, and high-level reduction of holdings. You have carefully analyzed the financial statements, competitive landscape, and growth potential, and decided to hold on for the long term. As a result, a wave of operations by the major shareholder emptied the company and cut the stock price in half. Can your value investment logic protect you? No. Another overlooked factor is the unpredictability of policies. A-shares are policy markets, as we all know. But the policy market means that no matter how much fundamental analysis you do, you may be hit back by a single policy. In 2021, the "double reduction" of education and training resulted in the overnight evaporation of the stock prices of New Oriental and TAL Education. Are there any fundamental issues with these companies? Deep moat, strong cash flow, and stable market position. But once the policy is implemented, these are no longer important. The approval of game industry version number is suspended, the real estate policy is closed and released, and the Internet platform is anti-monopoly... You said it was a special case, but the uncertainty of "I don't know what policy will come out someday" is a fatal blow to value investment. The premise of value investing is that the future is predictable. But can you bet that the policy environment in five years will be similar to what it is now? Most people dare not. So A-share investors speculate collectively, not because they are foolish, on the contrary, it is a rational choice. In a market that does not protect long-term holders, short-term speculation is actually the least risky strategy. What earns money is yours, and what is on the books can be taken away by various forces at any time. What about ordinary people? My answer is very direct: either don't touch it, or don't pretend to be a value investment. Don't touch, it's not that A-shares will definitely lose money, but rather that A-shares are a high difficulty game for ordinary people. Why do you outperform institutions without information advantage, financial advantage, and professional team? How many people can outperform bank wealth management by extending the time and adding together the gains from bull markets and losses from bear markets? Don't pretend to be a value investor. It means if you decide to play in A-shares, admit that it's speculation. Speculation is not a derogatory term, it is a trading strategy that involves short-term buying and selling based on market sentiment, capital flow, and technical form. A-shares have high volatility, numerous retail investors, and severe emotional instability, which are precisely the breeding ground for speculators. But you need to be clear: speculation requires discipline, stop loss, and fast in and out. When you can't speculate, shout 'hold for the long term', and if you get trapped, it becomes' I believe in fundamentals'. This kind of self paralysis will only make you lose more. When can A-shares truly be suitable for value investing? I think three conditions are needed: Firstly, the delisting system is truly effective, allowing garbage companies to be cleared out. Secondly, the rights of shareholders are truly protected, so that major shareholders dare not do whatever they want. Thirdly, policy formulation should be more transparent and predictable, allowing investors to make long-term plans. These are all improving, but at a slow pace. It's too early to draw a conclusion now. 11/Finally, let's talk about Buffett. After selling the H shares of PetroChina, he said that the stock price already reflects the company's value and there is no room for underestimation, so he sold it. Very simple logic. And what about those who bought PetroChina A-shares for 48 yuan? They may also feel that they are making value investments - China's largest oil company, monopolistic position, stable cash flow, don't they have "value"? But they overlooked one thing: price and value are two different things. In a market with a strong speculative atmosphere, prices can deviate significantly from their value, and the deviation can be so long that you doubt your life. Buffett is able to make money from PetroChina not because he understands the oil industry, but because he buys and sells in a relatively rational market. The same company switching to A-shares, in that crazy year of 2007, becomes another story. This is probably the best footnote to the dilemma of A-share value investment.