Maintaining absolute rationality and adhering to a flawless strategy is incredibly difficult. Harry Markowitz, the "father of modern portfolio theory," once summarized an investment strategy that is easier to put into practice: investors should "minimize future regrets." This approach aligns better with human nature and is easier to stick with.

Napoleon defined military genius as "the man who can do the average thing when all those around him are going crazy." The same applies to investing.

So, how should we face the present and the future? This article primarily reviews past reflections, reading notes, and insights from investment masters shared on our official account. In critical moments, these classic insights and quotes may provide us with deeper understanding and reflection.

1. Understanding the Psychological Cycle: What Matters is People's Psychology and Emotions

We all know that cycles are inevitable. In the investment world, it is crucial to study not only fundamental cycles but also psychological cycles. This is because, in many cases, what matters is not the data or the events themselves, but how people interpret them. And these interpretations swing back and forth along with people's psychology and emotions.

The emotional pendulum swings between two extremes: "too good to be true" and "hopelessly bad." It rarely pauses at the "center of happiness" (i.e., absolute rationality and fair valuation). When the public consensus is blindly optimistic or utterly pessimistic, the likelihood increases that the current price level and direction will become unsustainable. The cycle repeats.

2. What Drives Stock Price Growth?

For fundamental research investors, from a long-term perspective, the most important source of market return is the value creation of the listed enterprises themselves. However, in the relatively short term, or during different market phases, what drives stock price increases? We can attempt to explain the driving factors of stock prices using modern financial theory:

Price = PE * E;

In other words, stock prices can be broken down into two parts: earnings and valuation. Among them, the fluctuation of valuation is the most significant factor driving market volatility. The market cycles in China share similar characteristics with those in the US: the "Hope Phase" mainly drives valuation, the "Growth Phase" mainly drives earnings, and the "Optimism Phase" drives valuation once again. Moreover, liquidity is a vital factor driving valuation volatility.

3. Try to Buy Stocks When Nobody Cares About Them

No one can accurately and consistently predict market trends. Even world-class investment masters like Warren Buffett, Benjamin Graham, George Soros, or John Templeton could not do it. There is simply no single, all-powerful investment rule.

However, they all favor one investment strategy: try to buy stocks when they are neglected and attracting no attention—especially during times of crisis—and only buy good companies that you understand deeply enough.

4. Nine Suggestions for Dealing with Stock Price Fluctuations

Even if we know we must stay rational at critical moments, how do we handle the ups and downs of stock prices in actual practice?

• First: Honestly review your investment decision-making process. If there is a mistake, admit it as soon as possible. As Duan Yongping said regarding correcting mistakes, "No matter how high the cost of correcting a mistake is, it is still the lowest cost."
• Second: Ensure you can "survive" under any circumstances without impacting your quality of life. If a major drop next week would cause you financial ruin or a mental breakdown, you need to make adjustments.
• Third: Observe your own emotions and never make major decisions under extreme emotional states. If you are feeling anxious or fearful, you are better off going to sleep than making a decision.
• Fourth: If your investing impacts your family's life, communicate with them honestly to seek their understanding and support. Do not hide things, and do not deceive them.
• Fifth: Do not persist in a mistake just to "prove yourself." As the ancient philosophy goes: "Which is closer to you, your reputation or your life? Which is more valuable, your life or wealth?"
• Sixth: Avoid two common pitfalls. Do not fall into "information thirst syndrome"—frenetically reading every piece of news, commentary, and opinion. Do not fall into "stress-induced hyperactivity"—compulsively feeling like you must do something just to make yourself feel better.
• Seventh: Do not try to be clever. This includes attempting to short the market, swing trading, or buying the bottom with leverage. Howard Marks noted: "When there's nothing clever to do, the mistake lies in trying to be clever."
• Eighth: Reduce meaningless communication. Most people cannot detach themselves from the herd mentality; excessive communication only reinforces the market's emotional radiation. "Too many words lead to exhaustion; it is better to maintain inner balance."
• Ninth: If you haven't made a mistake, if you are rational and cautious, if your account can survive under any circumstances, if your quality of life is unaffected by stock prices, and if you possess enough patience—then you can try telling Mr. Market, "To hell with you." This is the reward you truly deserve.

5. In Extreme Times, the Secret to Making Money Lies in Contrarian Thinking

So, how should one operate during extreme periods? Howard Marks believes that in extreme times, the secret to making money lies in contrarian thinking, not blind conformity. When emotional investors hold extreme views on the future of an asset, thereby pushing prices to irrational levels, doing the exact opposite can usually yield easy profits. However, this is vastly different from simply going against the consensus all the time. In fact, most of the time, the consensus is the closest thing to the truth that most people can find. Therefore, to succeed in contrarian investing, one must understand:

What the crowd is doing,

Why they are doing it,

What is wrong with what they are doing, and

What action should be taken instead, and why.

Additionally, the renowned financial expert Michael Mauboussin offers a fresh perspective for contrarian investors: Think in reverse—your edge may stem from the inefficiency or ineffectiveness of other investors. This mainly manifests in four areas:

Behavioral Inefficiency: Mainly shown in the irrational behavior of "Mr. Market." When the market goes to extremes, valuations easily become too high or too low. At this point, one must strive to clearly separate facts from opinions. Facts are objective and can be disproven, whereas opinions are the opposite. Both facts and opinions are useful to investors, but facts must remain dominant.

Analytical Inefficiency: When all investors possess the same or similar information, analytical efficiency gaps arise because one investor can analyze that information better than others.

Informational Inefficiency: The ability to acquire valid information and have the cognitive capacity to understand it.

Technical Inefficiency: This is more closely related to market liquidity.

6. Investors Should "Minimize Future Regrets"

Investing is a conflict between a finite game and an infinite game. Investors who treat investing as a finite game often enter with a "get-rich-quick" mindset aimed at winning, only to find themselves inadvertently trapped. The finite game stretches into infinity, and they get tortured by endless short-term volatility. Long-term investors, however, view investing as an infinite game. They do not obsess over winning or losing a single battle; instead, they focus on surviving better over the long haul—long-term returns are merely the byproduct.

How can one be a successful long-term investor? There are three core elements:

First: Taking risks is the key to long-term investment success. How much risk you can bear is the most crucial predictor of long-term returns.

Second: You must diversify your risk exposure, reduce the impact of single risks, and minimize the fallout from Black Swan events.

Third: In the long run, you don't need a flawless strategy; you need a good strategy that you can stick with during tough times.

Because maintaining absolute rationality and adhering to a flawless strategy is so difficult to sustain, Harry Markowitz, the "father of modern portfolio theory," summarized an investment strategy that is much easier to implement: investors should "minimize future regrets." This approach is more aligned with human nature, making it far easier to stick with.