To The Moon

For stock trading, just follow the Jinlin Analyst Research Report—authoritative, professional, timely, comprehensive, helping you uncover potential thematic opportunities! (Source: Ling Peng's Strategy Essays) Regarding this question, the answer has actually been scattered throughout my previous articles. It's just that every five or six years, the A-share market experiences a bubble, and each time value investing gets mocked, so people still fundamentally doubt it. My 20 years of personal experience tell me: the A-share market is not only suitable for value investing, but its effectiveness is even greater than in mature markets.

First: Value investing is an objective law

Someone asked me: After years of exploration, why did you ultimately choose value investing? I said: Because I discovered it is an objective law, not subject to human will. On this point, see my previous articles "The Law of Value Is Objective" and "Is Value Investing Discovered or Invented?" Most educated people acknowledge the objectivity of gravity and evolution, but getting people to admit that value investing is also an objective law—not something Graham invented out of thin air—is extremely difficult. Value investing has developed for nearly a century, yet most people still believe the stock market is merely a place for capital games, human nature battles, and state will, with no objectivity to speak of. This is because the stock market is the epitome of social sciences—a place where national policy, industry cycles, capital behavior, and human nature are displayed at their extremes. It is not as pure as physics or biology, and variables cannot be isolated through experiments. So Graham was absolutely a genius, whose think level can be compared to Newton and Darwin. I once read a story: Munger said that one day in the 1960s, Graham gathered several of them together, including Buffett and Schloss. Then he posed a question, and no one could answer it, but Graham easily provided the solution. Munger marveled that Graham's thinking and insights were simply beyond the reach of people like them. Graham said "the stock market is a voting machine in the short run and a weighing machine in the long run." I have chewed on this sentence repeatedly over the past five years, and it is truly profound. The stock market is crowded with people, and at each stage capital behavior seems to be the sole life-and-death force, but once time is stretched out, the true master behind it emerges—that is the law of value. Graham, having weathered many storms, was able to summarize this law, making him a genius among geniuses. At the same time on the other side of the ocean, Keynes, after indulging in animal spirits and beauty contest theory in his early years, said almost the same thing in his later years. Two geniuses of the same era, without knowing whether they communicated, arrived at the same conclusion—this can only mean that the law of value is something objective, absolutely not subjective fabrication. Just as Leibniz and Newton simultaneously discovered calculus. Therefore, regardless of whether Graham wrote "The Intelligent Investor" or "Security Analysis," the law of value still exists. Just as gravity holds true regardless of whether Newton existed. In fact, I also wrote in "Do Not Mistake Human Ways for Heavenly Ways": Value investing is merely the specific application of heavenly ways in the investment field—this is the simplest great truth in the world. Having understood the above principles, my conversion to value investing follows naturally. If we want to build a house, we must understand the basic principles of mechanics and architecture; if we want to practice medicine, we must undergo basic medical training. So if we take investing and asset management as our lifelong career, how can we not follow the basic principles of the stock market?

Part Two: The Effect of Value Investing Is Greater in A-shares

Since it is an objective law, how could it not apply to A-shares? Have you ever heard of any place on Earth where gravity does not apply? Since its rebirth in 2005, the A-share market's multiple tops and bottoms all demonstrate the applicability of the law of value. You can refer to my previous articles written at several important junctures: "Where Are We?", "Panic Is Not More Rational Than Frenzy," and "Three on Value: Can A-shares Welcome a Bull Market?" The most recent round is the 2021 to 2024 "Mao Ning crash" and "dividend rise," and this time it unfolded in a two-way, simultaneous manner—Mao Ning going from high to low, and dividends going from low to high. On this point, see my previous articles "The Law of Value Is Two-Way" and "What Happened to A-shares Over the Past Two and a Half Years?" Since the law of value has been effective in A-shares over the past 20 years, why are there still so many doubts? Because long-term effectiveness is always accompanied by short-term ineffectiveness. The A-share market is extremely extreme at both ends: when it rises, it must exhaust itself completely—even the end of the world cannot stop it; when it falls, it is endless—even the gods cannot hold it up; and in between, absurd dramas like "Snake Spirit vs. Calabash Brothers" appear. So value investors often feel helpless. But this is not unique to A-shares; many mature markets are the same. This is actually an inevitable attribute of the stock market. When Graham proposed the law of value, he also created Mr. Market. This is the two sides of the same coin, and to some extent, it is also the root of the long-term effectiveness of value investing. Joel Greenblatt said in his "The Little Book That Beats the Market": The magic formula has been around for a long time—why is it still effective? Because in any few years there are always one or two years, and in any year there are always a few months, when it fails. It is precisely because "it is not always effective" that some people always give up, and ultimately it remains effective. For the dialectical relationship here, see my previous article "Effective and Ineffective."

So why do I say the effect of value investing is greater in A-shares? Because the amplitude of the A-share pendulum is larger! If a stock market swings from -50 to +50, then value investors can only capture -30 to +30. But if a stock market's swing range is from -80 to +80, then value investors can capture -50 to +50. In a less rational market, should one use rational methods or irrational methods? Many people think the latter, but that is greatly mistaken! For the stock market, the less rational it is, the greater the returns from being rational. If everyone were Munger or Buffett, then we could only earn the hard-earned money of corporate profits. When you play mahjong, do you want your tablemates to be experts or novices? Experts may make the game more exciting, and novices may randomly beat the old master with wild punches, but in the long run, from the dimension of making money, I would definitely prefer to play with novices. On this point, see my previous article "Is Value Investing Suitable for A-shares? —A Dialogue on 'The Tao of Munger.'"

Part Three: The Cultivation of Value Investors

But value investing also requires refinement. It is not that understanding the above principles means one can "instantly attain enlightenment"—there is still a difficult path to walk. First, one must have basic theoretical literacy and cognition. Many people start with "Security Analysis" and "The Intelligent Investor." In fact, value investing has developed for a century, with many new theoretical breakthroughs, and the world has changed greatly. So in addition to the above basic principles, I also recommend Howard Marks' "The Cycle," Adam Seessel's "Where the Money Is: Value Investing in the Digital Age," Bruce Greenwald's "Value Investing: From Graham to Buffett and Beyond," and Robert Hagstrom's "The Ultimate Money Mind," among others. For more specific recommendations, see my previous articles "The Evolution of Value Investing," "Value Investing Depends on Only Two Points," "Bill Miller's Transformation," and "Value Can Be Eyeballed." At the same time, we must have reasonable expectations. Many people say: Value investing masters only achieve a compound return of 15%–20%, so how can I go from a few tens of thousands in principal to financial freedom? Value investing is a process of enjoying compound interest and getting rich slowly—it truly cannot make someone rich overnight. But this itself is an unrealistic idea. If value investing cannot achieve it, would buying lottery tickets or gambling be easier? Second, the cultivation of temperament is very important. In the end, investing is truly about cultivation; theory and knowledge are just the foundation. Ultimately, an excellent value investor must pass the test of temperament. No one can help you pass this test—only your own experience. What you get from paper is ultimately shallow; to truly know this matter, you must practice it yourself! Finally, value investing is a luxurious behavior. It is not difficult, but it is luxurious, with many, many constraints. For example, institutions need rankings, and private funds face survival pressure. So in ordinary times, we must continuously solidify our moat, so that in adversity we can persist a little longer without distorting our actions. Take our company as an example: The first line of defense is to set aside enough operating costs for the next two years at the end of each year, always assuming the next two years will be adverse and you could enter a low period at any time; second, manage the liability side well and screen clients, trying to find investors with aligned philosophies and communicate fully, preventing the liability side from squeezing the investment side; third, carefully screen and treat employees well—also like-minded with consistent values—preventing internal friction during adversity.