Chapter 107 Price Stop Loss and Logical Stop Loss

Li Feng sent Lin Menghan back to the TV station in City B and then drove home.

Zhao Xinyue was overjoyed when she saw this. She immediately threw herself into Li Feng's arms, hugged him and said, "Why are you back now? Why did you come back just now?!"

Li Feng pried her hands apart and said with a smile, "Okay, okay, let me change my clothes first. Look at my clothes, they are covered with a lot of mud from back home."

Only then did Zhao Xinyue let go of her hand.

Li Feng changed his clothes and took a shower, then saw Zhao Xinyue sitting in front of the computer with a sad look on her face.

"What's wrong?" Li Feng put his arms around her waist and asked.

"Li Feng, will you blame me?"

"Why do you blame me?"

"I bought 20% of Gree air conditioners without telling you," Zhao Xinyue hesitated and regretted, "Look, my cost was 14.50 yuan, and after I bought it, the price kept falling. It even hit the limit down yesterday, and now it's only 11.42 yuan. I've lost over 20 points."

"You say, should I cut my losses?"

"Stop loss? Who told you to stop loss like this?" Li Feng wondered.

"Don't stop loss when you lose 20%? Should I stop loss when I lose 30%? Or, am I stopping loss too late? I should have stopped loss when I lost 10%?!" Zhao Xinyue asked with a frown.

"Neither of them is right!" Li Feng rejected.

"Why???" Zhao Xinyue was even more puzzled. "Isn't this how you stop losses? How else can you stop losses?"

Li Feng sorted out his thoughts and said slowly: "You are confusing two investment methods and two stop-loss methods. You are using a typical price stop-loss."

"If you're purely speculating on technical grounds, wasting your time poring over charts and market makers, setting a stop-loss like this is understandable. But you've been learning how to trade stocks with me for so long, and you bought Gree Electric Appliances because you wanted to invest in value. But if you're into value investing, why are you using a stop-loss method based on price speculation?"

"Isn't this just putting the cart before the horse and talking nonsense?"

Zhao Xinyue understood immediately, her face flushed red, and she argued, "Isn't this just because I don't understand? Who told you not to teach me earlier? Teach me quickly..."

As she said that, she punched him with her pink fist.

Li Feng took them one by one and continued, "The stop-loss in value investing is a logical stop-loss, not an indicator-based stop-loss. In other words, when the investment logic of an investment target suddenly changes, you should consider stop-loss."

"For example, if you invested in Gree Electric Appliances, you were definitely looking at its low PE, good industry, and high dividend yield. But, after a few days, have these investment logics changed?"

Li Feng asked seriously.

Zhao Xinyue thought about it carefully and replied, "How could it change in just a few days?"

Li Feng laughed and said, "So, why are you panicking? You invest in value, not price. If it drops 20%, you're panicking like this. You still don't understand the essence of value investing."

Zhao Xinyue pouted and retorted, "A 20% drop isn't enough? What if it drops further? What if it gets cut in half? If it really gets cut at the ankle, I'll never be able to recover!"

Li Feng smiled, took the mouse, and pulled up Gree Electric Appliances' data. He said, "Still falling? Hey, at the current price, the dividend yield is 8%. If it drops by half again, wouldn't it be 16%? If it really falls to the ankle, what dividend yield would it be? 40%!"

"Is it possible?"

"Uh..." Zhao Xinyue choked and could only say, "It's so high, it's impossible."

"It's absolutely impossible. Let alone 40%, even 20% is impossible—" Li Feng sighed. "You can easily count the number of companies in China that have such high returns... In the real world, if there is such a good business, countless people would be willing to risk their lives to get a stake in it!"

"Then, what should I do now?" Zhao Xinyue said.

"Since you use value investing, you must use value investing techniques to operate stocks. From now on, observe the fundamentals of this stock. If there are no changes, your investment logic is correct, then hold on to it. If you find that your investment logic has changed, even if the stock price rises sharply, you must sell it immediately!" Li Feng said.

“Remember, value investing is value investing, and price speculation is price speculation; they cannot be confused.”

"Many stock investors engage in price speculation, not looking for counterparties, but instead studying the value patterns of stocks. Similarly, many people engage in value investing, not studying company fundamentals, but instead spend their days drawing lines and counting waves. These are both completely counterproductive behaviors."

"It's like a chef cooking. If he wants to stir-fry potatoes, he naturally cuts them into shreds, but if he wants to stew them, he cuts them into chunks. If he gets it wrong, and cuts them into chunks when stir-frying, or cuts them into shreds when stewing, the dish will either be undercooked or overcooked."

"oh."

Zhao Xinyue responded and looked at the K-line chart of Gree Electric Appliances, but still felt sad.

Li Feng consoled him, "It's natural to feel down when the stock market drops, but at this point, you must stay calm and search more carefully to disprove, rather than confirm, your investment logic."

"Not to verify? To disprove?"

"Yes, many people, after buying stocks, keep an eye on good news every day, hoping for good news, dreaming about good news, and even fabricating all kinds of good news for the stocks out of thin air. This is immature behavior."

"As a value investor, once you buy a stock, you should search for negative news about it, constantly verify your investment logic, and be in a state of constant scrutiny and vigilance. If the stock's fundamentals change and your investment logic is overturned, you should sell immediately."

After hearing this, Zhao Xinyue felt a little relieved.

Zhao Xinyue immediately remembered something and stood up, pulled out a newspaper from the bookshelf next to her, handed it to Li Feng, and said, "Look, Qianlin Group is on the verge of bankruptcy, alas..."

Li Feng took the newspaper and looked at it. He saw a special report on the headline of page A6. The content was written in great detail. It was the news of Liu Bin's failure in stock trading. The news spread from a loss of tens of millions to a loss of hundreds of millions.

Qianlin Group's suppliers, partners, even advertisers and workers, all demanded payment for goods and wages, which put a run on Qianlin Group and broke its capital chain in an instant.

In order to save Qianlin Group, a working group had to be set up with banks and creditors to discuss how to resolve debts and resume production.

Li Feng looked at the report and felt infinite emotion in his heart.

If the bear market is an investment desert, then the bull market is a mass grave.

Every bull market will bury countless investors, destroy countless fortunes, and affect every corner of society.

Li Feng closed the newspaper, put it aside, and said:

"Don't worry about Qianlin Group. They're a wealthy family. That piece of land alone is worth a lot of money. Tens of millions of yuan may seem like an astronomical sum to us, but to them, it's probably just a drop in the bucket. It won't hurt them. Maybe after a few years, they'll recover and become a brave man again."

Then, he pondered, "Tomorrow, we'll move Hengtong Financial's trading room back to the Honggu High-Tech Building."

"So anxious?"

"We have to be anxious. Today is August 26th, and September is coming soon. According to convention, the semi-annual reports of more than 2,000 listed companies in the two cities will be released. It is a good time to study the financial reports and make investments." Li Feng analyzed.

Zhao Xinyue was very surprised and said, "Is the bear market over? Didn't you say that we have to wait at least another three to five months before considering investing?"

Li Feng shook his head and said, "When it comes to investment, there's no such thing as a sure thing. You have to adapt to the situation. When we said three to five months, we thought it would take several months of adjustment before the market bottomed out."

"No one could have imagined that in just three or five days, the Shanghai Composite Index would plummet by over a thousand points, a 25% drop, breaking through 3,000 points..."

"The market bottom has already begun to emerge, and it is a good opportunity to invest."

“We must be fearful when others are greedy and greedy when others are panicking, so that we can buy cheap goods.”

"What are you buying?"

When it comes to making money by buying stocks, Zhao Xinyue instantly becomes excited, and countless little stars instantly burst out from her crescent eyes.

Li Feng chuckled and said, "Let's talk about it after the interim report is out. You can take the time to study the second half report these few days."

"You—you're keeping me in suspense again—"

Zhao Xinyue punched him with her pink fist in displeasure.

The two of them laughed and joked for a while, and then Li Feng carefully read the financial news of the past few days. In his hometown these days, he was busy buying houses and land every day, and his studies had been somewhat neglected.

As he was reading, several pieces of news caught his eye.

First, in July, the three major drivers of investment, exports and consumption all stalled, and the downward pressure on the domestic economy increased. The initial value of the financial PMI fell below 48.8, hitting a new low since 2009. The downward pressure on the economy has increased. After 7% in the first and second quarters, GDP is likely to fall below 7% in the third quarter.

Article 3. On August 11, the exchange rate was reformed and the RMB central parity rate depreciated by 1.9%, a decrease of 1,136 basis points, creating the largest drop in history.

Second, on August 25, the central bank again cut interest rates by 0.25 percentage points and the reserve requirement ratio by 0.5 percentage points.

Li Feng looked at the three pieces of news and fell into deep thought.

The storm is coming.

The stock market crash has just passed, and greater challenges are still ahead.

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