Economic Wisdom to Apply in Your Twenties

Chapter 39

Chapter 5 Section 3 Don't be the "bigger idiot" in the stock market

From 1908 to 1914, the economist Keynes desperately made money.He taught everything, including principles of economics, monetary theory, and securities investment.At this time, Keynes was evaluated as "a machine that sells economics by the hour."The reason why Keynes worked so hard was to be able to freely and concentrate on academic research in the future without being troubled by money.However, how much money can you save just by giving lectures?
Finally, Keynes began to wake up. In August 1919, Keynes borrowed several thousand pounds for forward foreign exchange speculation. After 8 months, he made a net profit of more than 4 pounds, which is equivalent to his income from lecturing for 1 years.

Among the many financial tools, a large amount of data shows that stocks are an excellent long-term store of value.Over the long run, stock returns are largely unaffected by inflation.

The U.S. securities market has a history of more than 200 years. A statistical agency has compared the long-term return performance of three types of assets: stocks, long-term government bonds and short-term government bonds at different stages.After removing the influence of inflation, the data show that the real compound return rate of stocks has reached an average annual level of 195% in the past 7 years, that is, the stock return beats the inflation rate by 7 percentage points.

令人惊奇的是，股票实际收益率在所有主要阶段均表现出了出色的稳定性：1802～1870年是年均7％；1871～1925年是年均6.6％；1926～1997年是年均7.2％。即使在美国通货膨胀最严重的二战期间，股票的实际收益率仍达到了年均7.5%的水平。

However, money in stocks is not so easy to earn.It is easy to make money in speculative business, but it is also easy to lose money.Speculators often have this kind of experience: the jump at the beginning is often unexpected, and the money enters their own pockets inexplicably, and suddenly falls into the abyss when they are fluttering.

As Keynes mentioned at the beginning of this section, three months after he made a fortune, Keynes lost all the profits he earned and the borrowed principal.Speculation is the same as gambling. There is often such a mentality: you must win back what you lose.Half a year later, Keynes dabbled in cotton futures trading again, and made a wild bet with great success. Since then, he has been out of control and almost made all kinds of futures.He didn't think it was exciting enough, so he went to speculate in stocks again.

By the time Keynes died of illness in 1937, he had accumulated a huge wealth that he could not enjoy throughout his life.Different from ordinary gamblers, Keynes left a very explanatory "sorry" to future generations through his own actual experience-the theory of greater fools.

Keynes's greater idiot theory, also known as Bo stupid theory: the reason why you don't care about the real value of something, even if it is worthless, you are willing to pay a high price is because you expect a bigger idiot, Will pay a higher price to buy it from you.The key to speculative behavior is to judge that there are idiots bigger than yourself. As long as you are not the biggest idiot, it is a matter of winning more and winning less.If you can't find a bigger idiot willing to pay a higher price to buy it from you, then you're the biggest idiot.

Keynes once vividly gave an example: choose the face you think is the most beautiful from 100 photos, and there will be prizes for the selection. Of course, the most beautiful face will be determined by the highest number of votes in the end.How should you vote? The correct way is not to choose the face that you really think is the most beautiful, but to vote for whoever the majority will vote for, even if she is ugly.

So how do you avoid becoming the bigger sucker in the stock market?Experts suggest that in order to achieve stable profits without losing money, there are three points to pay attention to:
One is to insist on long-term investment.From the perspective of long-term development, the overall trend of the stock market is always upward. For any stock, as long as its fundamentals are relatively good, its share capital scale will inevitably become larger and larger.

The second is to choose the right time to buy.The price of the stock is not controlled by small and medium retail investors. Therefore, don't expect to be able to buy the lowest price, and in fact it is impossible to buy the lowest price. As long as the price is not too high, you can consider buying.The rise of stocks has a certain period of time.Investors should understand the stock trading principle of "trading time for space", and after buying a low-priced stock with good quality, they must hold it with patience and confidence.As long as the reason for buying in the first place has not completely disappeared, don't throw it away easily.

The third is not to exchange shares easily.The stock market often turns feng shui, 30 years in Hedong, 30 years in Hexi.If a stock whose fundamentals are not too bad and its price is not too high, its stock price is likely to rise again after falling or adjusting for a period of time.

As the American stock speculator O'Neill said: "Last year's junk stocks are likely to be this year's star stocks." This is the situation in the stock market.Practical experience shows that stock trading does not require too much wisdom.The reason why most "stock masters" become "stock masters" is that they dare to believe in themselves and establish their own relatively fixed hype style, as well as a set of simple and practical hype principles, firmly believe in themselves—and those who don't believe in My own people can only be reduced to "the biggest fool"...

Wisdom Pieces: Common Sense of Stock Classification
1. A shares

The official name of A shares is RMB ordinary shares.It is a common stock issued by companies in my country for domestic institutions, organizations or individuals (excluding investors from Taiwan, Hong Kong and Macao) to subscribe and trade in RMB.

2.B shares

B shares are also called RMB special stocks.Refers to those special stocks registered and listed in mainland China.The face value is indicated in RMB and can only be subscribed and traded in foreign currencies.

3. H shares

H-shares, also known as state-owned shares, refer to the stocks of state-owned enterprises listed in Hong Kong.

4. S shares

S-shares refer to the stocks of companies whose main production or operation and other core businesses are in mainland China, and the company's registration place is in Singapore (Singapore) or other countries and regions, but listed on the Singapore Exchange.

5.N shares

N shares refer to those foreign shares registered in mainland China and listed in New York (New York).

(End of this chapter)