In order to test the learning results, Yun Luo assigned a task to the host - to personally analyze the investment value of the CSI 300.
Jin Yao thought about it and selected data from the most recent year for comparison.
"A year ago, the CSI 300 index had a PE of 11.19, a point of 3330, and a fund price of 3.25."
"One year later, the CSI 300 index PE was 11.21, the point was 3688, and the fund price was 3.68,"
"The index rose by 10.75%, the fund rose by 13.23%, and there was a 1.9% dividend at the beginning of the year. The actual return is 13.23% + 1.9% = 15.13%."
At this point, Jin Yao was extremely puzzled. "Strange, with similar PE, why did the index increase so much? There is actually a big gap between the increase in the index and the fund. Didn't they say they were completely copied?"
Yun Luo: "In June and December every year, the index will adjust the proportion of constituent stocks and samples. Sometimes the adjustment can bring an additional return of 2%-4%."
Yun Luo: "Most stock software will exclude dividends from the index and not take them into account. But in fact, this part of the income fund is received. At the beginning and end of the year, it will be distributed to investors in the form of dividends."
Yun Luo: "Also, you can subscribe to new shares of the fund, which will bring you additional income."
"So the fund's performance is significantly better than the index," Jin Yao concluded.
Yun Luo: The actual situation is more complicated. Funds generally hold more than 90% of stock positions and a small amount of cash, so there will be a certain error in tracking the index. In addition, investors who purchase funds need to pay 0.6%-0.9% management fees and custody fees each year.
But...if we analyze it in further detail, I don't know if the host will be confused.
Anyway, the extra income can completely cover the fund operating expenses, and the fund's performance is better than the index. The conclusion is correct, so I won't say more.
Yun Luo: "SSE 50, CSI 300, SSE Dividend, CSI Dividend, Hang Seng Index, and Dow Jones Index all have the same growth pattern. If you are interested, you can do the math."
Hearing this, Jin Yaozhen picked up a pen and paper and started calculating one by one.
**
The more Jin Yao studied, the more she realized the benefits of buying index funds.
The excellent index is composed of the top domestic companies with stable operations and annual dividends.
The constituent stocks are replaced regularly and there will be no sudden changes.
Buy at low valuations and you don’t have to worry about anything, and you can beat inflation in the long run.
…
At that time, the account balance was 8.5 million. Wouldn't it be better if she sold the stocks and bought a house or a dividend fund? Why did she just keep holding on and wait for 10 million?
Jin Yao held her forehead with her hands, silently shedding tears of regret in her heart.
No wonder people say that the times will punish those who don't study. She was punished inadvertently, and there was no way to escape!
But...who should I blame?
In the past, I didn't listen, didn't learn, and didn't care. Even when I heard Sister Yang talking about financial management, I would automatically ignore it. Isn't it her own fault that things have come to this point?
Jin Yao thought about it for a moment and felt like banging her head against the wall in frustration.
She hated herself for being enlightened too late, and hated even more that she missed the opportunity that was right in front of her.
"I've learned enough theoretical knowledge, when will I start to practice?" Jin Yao forced herself not to think about those unhappy things. She was afraid that if she recalled them too many times, she would become depressed.
Yun Luo: "If you want to invest, the host must have money first."
Jin Yao pursed her lips and said, "I lost all my money. I only have 3,000 left in my bank card."
Yun Luo: "First prepare three months of living expenses as emergency funds."
Yun Luo: "If you don't have a good habit of saving money, you can search for 'money saving tips' on the Internet."
"Is there a faster way?" Jin Yao couldn't help but ask, "I'm already 29 years old, and I have to start saving money like a college student who just graduated. This is too..."
Yun Luo: “There is no shortcut to investing.”
Yun Luo: "No matter what age you are now, if you have no savings and no investable funds, you have to start from scratch and take it step by step."
Yun Luo: "If you want to blame someone, blame yourself for wasting your time when you were young."
Jin Yao, "..."
She sighed and responded helplessly, "Got it. Just go slow, I'll listen to you."
**
Saving money from salary is an extremely difficult task.
After deducting necessary expenses such as rent, living expenses, utilities, and property, she could only save 2,000 yuan a month at most. It took Jin Yao four months of hard work to save up 10,000 yuan.
"What's next?" she asked.
"Choose the index that suits you." Yun Luo replied.
Jin Yao did not hesitate, "I choose the Shanghai Stock Exchange Dividend Index."
Yun Luo: "After selecting the target, the host will officially start investing."
Yun Luo: “Usually, monthly or weekly investments are adopted.”
Yun Luo: "Before making a fixed investment, make a good investment plan. This includes but is not limited to: what is the valuation for investment, how much money to invest each time, and when to withdraw it?"
"I choose to invest weekly, 400 per week. I will never sell after I buy, I will always hold it, and use it as a pension supplement in the future." After a moment of silence, Jin Yao asked, "I always hear you say to buy at a low price. For the Shanghai Stock Exchange Dividend Index, how much is considered undervalued?"
Yun Luo: “In fact, different standards apply to different investors.”
"From the last bull market, the lowest PE of the Shanghai Stock Exchange Dividend Index was 6.6 in a bear market and 15.2 in a bull market. The rest of the time it fluctuated back and forth in a range."
Jin Yao wondered: "The lowest PE last time was 6.6, so why don't I just wait for PE to be 6.6 this time? If I buy at the lowest point, I will definitely not lose money."
Yun Luo: "The so-called lowest point happens every ten years. Host, are you sure you want to wait?"
Ten years?! Jin Yao was stunned.
Yun Luo: "The extent of each decline is different. The lowest last time was 6.6, and this time it's 6.7. What should we do? The host has waited for ten years, but may not get the ideal investment opportunity."
"...fixed investment when pe<10?" Jin Yao relaxed the standard and said tentatively.
Yun Luo: "PE < 10 is the most commonly used valuation dividing line for dividend funds. If you buy below the valuation, the annualized return for long-term holding will be above 10%."
Just as Jin Yao smiled, the system continued, "But this standard also has some problems."
"What's the problem?" Jin Yao was a little nervous.
Yun Luo: "As I said before, the PE has dropped to as low as 6.6. If the PE is less than 10, the account may show a loss of 20% when it drops to 6.6. Can the host tolerate it? Can you stick to the investment plan and increase your position when the price drops?"
Jin Yao's mind moved, and she quickly understood what the system meant. "When the PE is set low, there are fewer opportunities, and the probability of loss after buying is low. Even if you are trapped, it is a shallow trap. When the PE is set high, there are more opportunities for fixed investment. But at the same time, the market will take a sharp turn for the worse after buying, and you may have to endure book losses for a long time."
Yun Luo: "So when investing, you have to make a plan based on your own endurance."
"The good strategies used by others may not be applicable to you."
"You said that if the PE falls to 6.6, you should go all in. But how do you know it won't continue to fall? Every time it falls to the lowest point, the market sentiment is the most pessimistic. Investors generally believe that it will fall lower in the future, so they are reluctant to buy."
"Don't invest at the lowest point, but invest in an area with lower valuations." Jin Yao concluded, "For example, start investing 20% away from the lowest point, and PE < 8?"
Yun Luo: "If the host thinks it's okay, you can use this as a basis to formulate a dedicated fixed investment plan."
"Do I have to invest every month/week?" Jin Yao asked again, "Can I save the money and increase the investment amount when PE < 7?"
Yun Luo: “It’s not easy to find a PE<7. Maybe there will be a suitable investment opportunity only once every two or three years.”
Yun Luo: "If the host can wait, you can try."
Two or three years...
Jin Yao was very conflicted - she wasn't sure if she had the patience.
Yun Luo: "You have to choose one, either you have to be patient and wait for the lower price, or you have to relax the buying conditions and endure the paper loss."
"...Is there no other possibility?" Jin Yao asked without hope.
unexpectedly--
Yun Luo: “Yes.”
Yun Luo: "Lucky rich second generation."
Yun Luo: "My family has 5 million to invest, and the stock market happened to hit a low point that is rare in the past decade, so I mustered up the courage to buy at the bottom."
Yun Luo: "Because I bought it at the lowest point, it will only go up and not down."
Yun Luo: "Invest 5 million at once, once and for all, no need to consider regular investment."
Jin Yao, "..."
For a moment, she didn't know whether it was more difficult to achieve the goal of having 5 million yuan of investable funds at home, or whether it was more difficult to achieve the goal of achieving the goal of having 5 million yuan of investable funds at home, or whether it was more difficult to achieve the goal of having the stock market hit a low point that had not been seen in a decade.
Or maybe the hardest thing is actually to muster up the courage to buy at the bottom?
“To put it simply,” Jin Yao tried to remain calm, “it’s about making money while waiting for undervalued areas and buying regularly.”
“The lower you buy, the less likely you are to lose, and the more you’ll earn in the future.”
Yun Luo: "You can understand it that way."
"Investing is too difficult." Jin Yao wanted to cry.
Yun Luo: "It is difficult to understand theoretical knowledge. The host can try to practice it personally."
Yun Luo: "Once you develop a habit, everything will proceed in an orderly manner."
Yun Luo: "It's never easy to make money, but money making money is always more promising than people making money."
There are only 24 hours in a day. Even if you work hard without sleep, your income will be limited.
Investment is different. You can invest hundreds of millions or tens of millions of dollars, and your wealth will increase steadily without you having to work too hard.
"I will try my best!" Jin Yao casually imagined the nightmarish future and felt that the current suffering was nothing.
She longed for wealth and wanted to be rich, so she tried her best to achieve it.
**
While making money, wait for undervalued areas and buy regularly.
This is easier said than done, especially since Jin Yao is a newcomer.
Whenever the fund had been rising for two months, she would become terrified, fearing that it would never fall back to the undervalued area.
The fund fell for half a year, fell below the set line, and hovered at a low level for a long time. At first, she invested regularly every week and resolutely implemented the plan. After a while, seeing that the fund had not risen for a long time, she couldn't help but doubt whether it could rise in the future.
After another three months, the fund price slowly rose and the fixed investment turned from loss to profit.
On the one hand, Jin Yao was happy to make money, but on the other hand, she was reflecting on whether she had bought too little during the fixed investment period. If she had invested 10,000 more, wouldn't she have made more money now?
The fund rose by 30% in three months, and then slowly fell back. She couldn't help but think: If she sold it at a high point and bought it back at an undervalued point, wouldn't she make more money?
…
After a long time, Jin Yao felt very tired.
She thought to herself, no wonder everyone says it’s hard to make money by buying funds and stocks, it’s really too difficult and too tiring!
In this regard, Yunluo said, "Make a dedicated plan before investing, and strictly implement it after investing."
"I told you to buy in undervalued areas and hold on to them. You can use them as a supplement to your pension in the future, so never sell them."
“Keep doing simple things and don’t make things too complicated. Not only will you get tired, but you’ll also lose money.”
"When you have free time, think about how to start a side business to make money. Invest in index funds and check once a week is enough."
"I understand." Jin Yao gritted her teeth and repeatedly told herself to control her hands.
The author has something to say:
The crudest way to understand it:
pe=10 means all profits are distributed as dividends, the investment is recovered in ten years, and the annualized rate of return is 10%.
The actual dividend is only 30%, and the rest is reinvested to expand production, so the rate of return is >10%.
**
Author's Science
There is an "Egg Roll Index Valuation" (produced by Snowball), where common indexes such as PE and PB can be found.
The indices seen in ordinary software do not calculate dividends.
The index used to calculate dividends is called the total return index. (The data is difficult to find. Some data can be found on the official website of China Securities Index Co., Ltd., but some cannot.)
What is the difference between the two?
For example.
The Shanghai Stock Exchange Dividend Index (also known as the Dividend Index) was established on December 31, 2004, with a base value of 1,000.
As of February 20, 2020, the index was 2660.
In 15 years, the stock price has increased by 166%, with an average annualized return of about 6.7%, which is not a good performance. This is partly because the valuation was high in 2004 and is currently low, and partly because dividends are not taken into account.
As of February 20, 2020, the total return index was 4342.
In 15 years, the increase was 434.2%, with an average annual return of approximately 10.2%.
[For growth stocks/indexes, profits are often reinvested and dividend amounts are extremely small. There is little difference between normal indexes and total return indexes.]
[For dividend-paying stocks/indexes, high dividends are paid every year, and not counting dividends = 30% less income]
**
The Dow Jones Index was first compiled in 1884, and when it was first published, the index was 40.94 points.
After 136 years, the index closed at 29219.98 on February 20, 2020. (Annualized 5%)
The base date of the Hang Seng Index is July 31, 1964. The base index is set at 100.
After 56 years, the index closed at 27609.16 on February 20, 2020. (Annualized 10.65%)
[Not counting dividends]
[Long-term upward trend]
[Constituent stocks are frequently changed, but the index always remains dynamic]
**
510300 (CSI 300), 510050 (SSE 50), 510880 (SSE Dividend), these are all on-exchange ETF funds that pay dividends every year.
There are currently few similar dividend funds in China, but since 2019, domestic index funds have grown explosively and many new products have emerged.
**
In 1996, Buffett said, "Most investors, both institutional and individual, will sooner or later discover that the best way to invest in stocks is to buy index funds with very low management fees."
On May 3, 2008, at the Berkshire shareholders meeting, Timothy Ferris asked: "Mr. Buffett, if you are only in your 30s, have no other source of income, can only rely on a full-time job to make a living, and cannot invest every day, assuming that you already have some savings that are enough to support your living expenses for a year and a half, then what should you do?
Buffett responded: "I would invest all my money in a low-cost index fund that tracks the S&P 500 and keep working hard."
[The US Standard & Poor's 500 Index is equivalent to the domestic Shanghai and Shenzhen 300 Index]
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