Investor Insight

Asset allocation is more important than stock selection in investing because it smooths portfolio returns and controls downside risk, while stock selection relies on predictions of individual companies' future prospects, which are highly uncertain. Long-term investment practice shows that the key factor determining the final return of an account is the asset class and its proportion, not the success of stock selection. Therefore, sound asset allocation is the cornerstone of investment success. In simple terms, asset allocation is diversifying your investments across different types of assets based on your investment goals, time horizon, and risk tolerance. These assets typically include stocks, bonds, cash-like products, and other categories such as gold. The core idea is to build a diversified portfolio to avoid significant impacts on your overall wealth due to sharp fluctuations in a single market or asset.

In the realm of financial investment, market changes, like ever-changing weather, constantly influence investment decisions. Investment decision-making is the process by which investors, based on their investment objectives, risk tolerance, and market conditions, select suitable investment targets and timing. When making investment decisions, investors need to comprehensively consider various factors, including market trends, industry prospects, and company fundamentals. However, the market is dynamic, and investors' decisions must adjust accordingly. Investors need a deep understanding of the patterns of market changes and to adjust their investment decisions promptly based on market conditions to achieve their investment goals. Simultaneously, they must focus on risk control and remain calm and rational to achieve good investment returns in a complex and volatile market environment. Investment decisions are made before market changes occur, indicating that investment decision-making is a forward-looking and strategic process. Formulating investment decisions requires a comprehensive analysis and assessment of market trends, industry dynamics, potential opportunities, and risks. Through these analyses, investors can make informed investment decisions, thereby achieving asset appreciation and risk control.

We know that recessions happen, and they seem to be a fairly common phenomenon. To some extent, every recession looks very similar. Overall economic activity and national economic activity decline, unlike a blizzard affecting only a specific region or a boom in a particular industry (like technology). Durable goods, investment, real estate, and things used for financing suffer more, while services and non-durable goods (food) fall much less. Employment declines, and unemployment rises. While most people are hesitant, a minority are quietly laying the groundwork for the next wealth leap. Recessions often occur when something bad happens—like the financial crises of 1933 and 2008, the sharp tightening of monetary or credit policies and oil market turmoil of 1973 and 1979, and the end of economic boom cycles of 1929 and 1999. But these are usually just amplifying factors, not the complete cause. Because sometimes, these events don't lead to a recession.

The adjustment of intelligent capital before the turning point is essentially a strategic restructuring, shifting from chasing short-term bubbles to building long-term value moats. This adjustment is not a simple change in investment strategy, but an inevitable choice after capital's deepening understanding of the essence of AI technology. Before this turning point for intelligent capital, many companies are reassessing their capital expenditure plans. As the market cautiously examines investment returns, many companies are beginning to cut committed capital expenditures to cope with future uncertainties. Standing at the starting point of 2025, the global artificial intelligence industry is undergoing a critical shift from scale expansion to value cultivation. The record-breaking $100 billion in financing in 2024, the diversified exploration of technological paths, and the reshaping of the global competitive landscape collectively outline a new picture of industry development.

Investment decisions with a high probability of being correct are not based on subjective guesses or market sentiment, but rather on historical patterns, data verification, and logical deduction, demonstrating a stable win rate over the long term. It doesn't aim to be "right every time," but through continuous repetition, ensures that "the number of correct decisions far exceeds the number of incorrect ones," ultimately accumulating certain returns. The core concept of Long-Term Capital Management (LTC) indeed emphasizes probabilistic thinking rather than attempting to accurately predict the future. This strategy acknowledges the uncertainty of the market and makes decisions by assessing the probability of different outcomes and their potential impact, thereby achieving robust returns in the long run.

The difference in perspective between long-term investors and traders stems from fundamentally different timeframes and objectives. Traders typically focus on short-term price fluctuations to capture immediate opportunities, while long-term investors rely on deeper analysis to identify sustainable value drivers. This difference allows long-term investors to see key elements that traders often overlook. Long-term investors filter noise through a rigorous, disciplined framework, such as setting clear buy and sell criteria, money management rules, and regular review mechanisms to reduce emotional interference. This systematic approach helps them avoid chasing short-term hotspots and focus on principles that stand the test of time, while traders' high-frequency trading can lead to overtrading due to a lack of discipline.

Savvy investors prioritize timing over price because they focus on market trends and investor sentiment, not just simple price fluctuations. Changes in market trends and investor sentiment often impact overall market performance, while price fluctuations may only be short-term. Savvy investors analyze market movements and investor behavior to determine the optimal investment opportunity. Investing in exceptional companies is like planting seeds; it requires not only identifying fertile soil (a reasonable price) but also understanding seasonal changes (timing). Price determines the margin of safety, while timing determines whether growth momentum can be successfully released. Ignoring either can lead to missing out on substantial returns; only by possessing both can one truly embrace the blossoming of value.

In the world of investing, Charlie Munger emphasizes that patience is key to success. He believes that many investors know they need to "find good opportunities and stick with them for the long term," but often lack the patience for patience, leading to investment failure. Munger points out that this problem stems from a gambling mentality—if you treat investing like a casino game, you will overemphasize short-term results and ignore long-term value. Instead, he advises investors to gamble less and invest more, because investing is about long-term returns, not immediate gains. Patience is not innate but can be cultivated. For a long-term investor, patience is crucial. The renowned long-term investor Warren E. Buffett advocates for safety first, not chasing short-term profits, but holding quality stocks for the long term. Investing is about patience—long-term investing, value investing, not prioritizing short-term gains. When good ideas emerge, how do we ensure they receive funding and nurturing from patient capital?

The relationship between consumer reaction to product prices and their decision-making is crucial, impacting a company's pricing and marketing strategies. Consumer reactions to product prices are influenced by various factors, including the product's price elasticity, competitors' pricing strategies, consumer income levels, and the overall market price level. When faced with price changes, consumer reactions can be categorized into three types: products with high price elasticity, where consumers are highly sensitive to price changes, and even small price fluctuations lead to significant changes in demand; products with low price elasticity, where consumers are less sensitive to price changes, resulting in relatively small changes in demand; and products with zero price elasticity, where demand remains largely unchanged regardless of price fluctuations. Therefore, companies need to fully consider the product's price elasticity and the competitive landscape when setting prices, flexibly employing different pricing strategies, such as differential pricing, psychological pricing, and bundling, to meet the needs of different consumer groups and increase sales revenue. Simultaneously, companies can conduct market research and price experiments to understand consumer reactions to product prices and develop more scientific pricing strategies.

"Why you buy" is more important than "What you buy" because the former touches on the root of the decision, while the latter only focuses on appearances. "Why you buy" drives "what you buy," just as determining the destination is more important than choosing the ship in navigation—without a clear motivation, the choice may deviate from the true need. For example, when buying a house, if you only focus on "what to buy"—the type of house, location, etc.—without considering "why you buy" (such as asset appreciation, family stability, or social recognition), you are prone to blindly following trends. Conversely, clarifying the motivation first, such as "cultivating financial habits through real estate," allows you to select a matching type of property. In business and marketing, understanding the deeper reasons behind consumer purchasing decisions is more important than simply focusing on the product itself. Consumers are not just buying products, but also the unmet desires and needs behind them. By deeply analyzing consumer behavior and psychology, brands can better position themselves in the market, meet consumer needs, and thus improve brand loyalty and market competitiveness.

Capital, in essence, pursues value appreciation and expansion. This pursuit often manifests as a preference for "asymmetry" rather than a thirst for certainty. Asymmetry refers to the expectation in investment or capital operations of obtaining higher potential returns with lower risk or cost; that is, losses are controllable in adverse situations, while profits are substantial in favorable situations. This logic stems from the profit-seeking nature of capital, which naturally tends to seek opportunities with high uncertainty but high potential returns to achieve its own value appreciation.Capital profits from information asymmetry by exploiting it as a form of "knowledge tax," but technology is breaking this monopoly. From high-frequency trading to fraudulent marketing, information asymmetry has become a means of production, while blockchain and social platforms are driving the democratization of information. This battle for the right to know will reshape the rules of competition in the digital economy era.

Market volatility reflects information, not directly expresses emotions. Investors should analyze market information rationally and avoid being swayed by emotions. Market volatility is normal, and short-term fluctuations should not interfere with long-term investment decisions. Investors should view market ups and downs with a more calm mindset, focusing on fundamental analysis of companies and the discovery of long-term investment value. Market volatility is essentially a process of information transmission, but emotions can amplify or distort the efficiency of information interpretation. From the core viewpoint of the reference content, this volatility includes both rational reactions to changes in fundamentals and irrational interference from collective emotions; both constitute the dynamic equilibrium of market prices.

Modern Portfolio Theory (MPT) summarizes how rational investors use diversification to optimize their portfolios. MPT, or mean-variance analysis, is a mathematical framework for portfolio diversification that maximizes expected return for a given level of risk. In the theory, asset returns are random variables. Since a portfolio is a weighted combination of assets, its return should also be a random variable, thus having an expected value and a variance. In the model, risk is the standard deviation of portfolio returns. In recent years, the fundamental assumptions of MPT have been widely challenged by behavioral economics. Portfolio weights reflect investors' true investment beliefs, particularly regarding the balance between risk and return. Adjusting weights can help investors allocate assets rationally based on market conditions and their own risk tolerance to achieve optimal investment results. For example, during economic booms, investors might increase the weight of riskier assets to pursue higher returns; while during economic downturns, they might increase the weight of more conservative assets to reduce risk.

Market cycles, much like the changing of the seasons, occur between economic activity, corporate profits, interest rates, and confidence. Predicting every turning point precisely is difficult, but a simple approach is needed: a cycle isn't a one-off event, but rather a series of overlapping changes that propagate across assets like stocks, bonds, and commodities. Investors navigate this cycle not by luck, but by their perception of the environment, their understanding of their goals, and their control over risk. The Cambridge Dictionary defines a cycle vividly: "A set of events occurring in a specific order, one after another, and this order often repeats." "Unlike the symmetrical cycles in the physical world, the symmetry of economic cycles only applies to the direction of rises and falls; the magnitude, timing, and speed of these rises and falls are not necessarily symmetrical." There is currently no universally accepted understanding. However, it can be considered a framework and method used by top investors to think about the entire investment world. Just as using a DCF valuation model to calculate company valuation is a way of thinking about company value, there is no right or wrong answer, no standard solution; the final analysis depends on each individual's understanding.

The purpose of investment is long-term growth, but stability must also be considered. Long-term growth means that the returns from investment can continue to appreciate in the future, while stability ensures access to funds when needed. Investment is not just about pursuing short-term gains, but about gaining an advantage in future financial security and quality of life. In today's society, investment has become a highly discussed topic. Understanding the essence of investment and why to invest is crucial for everyone's financial planning and quality of life improvement. The essence of investment can be understood as a cross-temporal allocation of resources. From an economic perspective, investment involves putting current funds into various assets, hoping to obtain appreciation returns in the future.