The Essence of Profit and Loss Sharing the Same Source

For ordinary investors, it is almost impossible to escape the limitations of this theory. The reason is simple: in risk-based investment markets with full betting, profits are probabilistic events, and they are small-probability events. The more you participate, the harder it is to escape this probability constraint. In fact, in real situations, the probability of ordinary people beating the market is much lower than the theoretical probability. For example, a well-known statistic is that in the stock market, 20% of investors profit, 10% break even, and 70% are still recovering their costs. In reality, over longer periods, the proportion of ordinary people making a profit of 20% is unattainable because everyone overlooks one point: listed companies, major shareholders, securities firms, large professional fund companies, private equity institutions, high-net-worth investors, and investors with information sources take away the vast majority of that 20% profit share.
The places where ordinary investors can earn risk-adjusted returns are often also sources of potential risk losses. "Tripling in one year is as common as crossing the river, while doubling in three years is rare"—this is roughly the principle.
How to Avoid "Profit and Loss Sharing the Same Source" as Much as Possible?
1. Diversify investments.
There are two implications: first, you must not put all your investments into a single risky asset—this has been said many times. In my own asset portfolio, high-risk assets account for about 30%, and when I am confident, it will not exceed 50%. Second, in asset selection, avoid individual risks. My approach is to avoid stocks altogether and only participate in index funds ETF. Many people think that index funds ETF have small gains and slow returns, but do you know? Over the past few decades, 70% of individual stocks have failed to outperform index funds ETF—that’s just a probabilistic event.
2. Low-risk, high-certainty returns are far better than high-risk, uncertain returns.
Many people tend to confuse the yields of assets with different risk levels. Simply put, some compare a stock that rises 10% in one day with bond funds that yield 4% annually, or compare with government bonds at 1.9%. Can they be compared? Basic common sense, right? I dare to allocate 70% of my assets to government bonds and bond funds, but would I buy individual stocks with that 70%? Obviously not.
3. Buy assets at relatively low positions, avoid following the crowd.
Long-time followers know this well. All my strategies are recorded on my homepage, whether it’s last year’s May and June Hong Kong stock index, Japanese yen, core area real estate in Shenzhen, or the Hong Kong A-shares index, pharmaceuticals, and liquor stocks at the beginning of this year—all at relatively low levels. Be patient and wait for value to return, and you can harvest this high-probability return. In the long run, you will still outperform the market average.
4. Only earn within your cognitive scope.
I have said this a thousand times to my followers. Last week, I posted about clearing out the Hong Kong stock index. Many new viewers questioned my level—why not participate in such a big trend? Honestly, with my current level, I can only earn within my cognitive scope. The rest is beyond my ability.
Shared from xhs insummerwefly