Manhattan Reborn 1978

Texas, Houston.

Early morning~

West of downtown, 19 Piney Point Village, Piney Point Village, Memorial District.

Professor Bartlett had just returned from a walk in the backyard when he saw that the front yard was already full of people. .

He opened the door curiously and asked Mr. Tianniu, who was wearing a crisp suit, "What are you...?"

"Oh~ Good morning, Professor!"

"We didn't disturb you, did we?"

"No."

Mr. Tianniu said a few words to the people around him, walked up to the professor, and explained: "The boss will come over to record the program later, and these people will help organize the recording equipment."

"Don't worry, I'll let them go back immediately!"

"Oh." Professor Bartley glanced at the big boxes placed among the crowd, nodded and turned back.

. . .

After half an hour.

in the living room.

David, who was wearing a shirt and sweater, gave the instructor a draft of the program to be recorded today to read through first.

Professor Bartlet looked at the only two pages in his hand and the "lonely" lines on them, and couldn't help but laugh.

"Is this what you call program recording?"

"Yes~"

David sat next to him, smiled and shrugged: "It is indeed a bit simpler."

"Because when I'm recording a program, I mostly follow the main line of the script and develop a lot of things. Basically, I just talk about whatever comes to my mind~"

"Okay..." Professor Bartlett suppressed a smile, threw the manuscript to David, and turned to look at the busy people.

"I'm sitting here. Is it okay?"

"of course not!"

David got up with the manuscript and walked around the "middle stage" in the living room. He saw Elena, who was also the cameraman, lighting artist and makeup artist, already ready.

Sound engineer Toby also completed the sound recording test and said there was no problem.

The prop master, set manager, and temporary staff member Mr. Tianniu have also prepared everything that may be used later.

David picked up the juice glass on the table next to him, raised his glass to Elena behind the camera and smiled.

"So... let's get started!"

"ok~"

"Countdown ready!"

"Three, two, one..."

"start!"

"Hi ~ Hello everyone!"

"I'm the most handsome, most memorable, and most beloved person you'll miss most, David!"

"I have not been able to meet you all during this period, and I want to say sorry here!"

"However, today I have brought another topic that everyone is very interested in and want to share it with you~"

David held a juice cup in his right hand and sat leaning against the table. He pointed to a blackboard next to him with his left hand and smiled.

"invest!"

"This topic must be familiar to everyone, right?"

"After more than half a year of traveling around, I have discussed this topic with many friends and financial practitioners in the investment community."

"But they basically don't have a unified answer on how to ensure that their investments make money, which makes me troubled for a long time."

"So, today I will try to classify, analyze and summarize the answers they gave~"

“I hope it can give everyone some inspiration or reference on how to manage their own investments!”

"Okay~"

"Let's get down to business!"

"As you can see~"

"I divide the investors in the market into two types according to their different investment methods: active investors and passive investors."

"Most passive investors do not expect to outperform the market. They regard obtaining stable long-term income as their main investment goal in order to avoid frequent transaction costs and the impact of investment income due to economic downturns."

"Active investors will try to use their professional knowledge and judgment of trends to beat the market and gain more profits."

"Compared with the former, their investment method will obviously consume more fees and time costs, and the final returns will be difficult to satisfy."

"On Wall Street and the City of London, only the top 5% of active investors can beat the market and obtain excess returns!"

“Whose money are these very few winners making?”

David put down the cup in his hand, walked to the small blackboard, and said with a smile: "Obviously it is not the money of passive investors, but the spoils they obtained in the war between active investors."

"So, when people talk about investing in recent years, most of them will say that they have not made any money at all, but have lost a lot."

David picked up the chalk from next to the small blackboard and wrote as he spoke.

“What I’m going to talk about next may seem a bit superficial to you~”

"But everyone may have forgotten that the more basic the knowledge, the more people will ignore its importance!"

"For example~the three major problems in the investment world!"

"What to buy? How much to buy? And when to buy it?!"

"The investment logic of most investors is based on the answers to these three questions~"

"The main content I want to talk about today is also the personal results summarized in stages after conducting some research on it. Now I will share it with you~"

"It's the cycle."

"The word cycle is actually not far away from our daily life~"

"In the research on mathematics, physics, biology, meteorology and other disciplines, different periodic phenomena appear."

"For example: Physics researchers will mention periodicity, which means that after a certain period of time, a moving object repeatedly returns to its original position, and its instantaneous speed also repeatedly returns to its original size and direction."

"The time it takes for an object in uniform circular motion to move around once is called the period!"

"Biologists will closely observe and study the growth cycles of animals and plants for decades or even generations."

“Here, let us first think about why investment should study cycles?”

"Every investor has a fantasy in his mind, which is to surpass the market average and obtain excess returns~"

“But if you want to earn as much as the market, it’s actually very easy to buy some of our company’s fund products~”

"But if you want to outperform the market, even if it is only 1%, it is very difficult. Only if we know more than others can we predict better than others, and we can make more money."

"Many investors like to analyze macro data and guess how much GDP will grow next year and how inflation will change."

“Although these data are important, only a very small number of people can accurately predict them. No matter how much time ordinary people spend studying, it is no different than just guessing with their eyes closed. Moreover, the data shows that the performance of macro investors is also average. "

"So I will try to make less macroeconomic forecasts in the future and spend my time on more efficient market research."

"To be specific, there are three big pieces!"

"The first is fundamental information, including basic data on industries, companies and securities. These are public information in the market. As long as we are willing to spend time, we can know more than others."

"The second is the market aspect. We must train ourselves to abide by trading disciplines and conduct transactions at reasonable prices. We should neither buy too expensive investments to chase the rise, nor be too impatient. We must rush to sell when the price has risen enough."

"The last thing is the portfolio. We have to adjust the investment portfolio to respond to different market environments."

"People who admire Graham's value investors will pay special attention to fundamentals and market conditions."

"They will spend a lot of time in the market looking for stocks where the price and value do not match, buying assets that are undervalued."

"I think this approach to value investing is really, really sound."

“But if investors can adjust the proportion of risky assets and defensive assets based on the ups and downs of the economic cycle on this basis, they can make more money.”

"In addition, deposits and government bonds, which do not experience particularly large price fluctuations due to market changes, are usually regarded as defensive assets."

"The rest, such as the stock market, real estate or commodity futures, which have extremely large price fluctuations, are typical risky assets."

"So what exactly is a cycle? What role does it play in our investment?"

"I believe that some things in economic activities will follow certain rules and repeat, just like the sun rising in the east and setting in the west. It is a long-term law formed by economic development."

David waved to Mr. Longhorn who was standing not far away, took a few printed charts, walked to the camera, and said.

"Judging from these historical data~"

"The economy will grow, companies will make more money, and the stock market will generally rise."

"But things will never develop in a linear manner. Regardless of whether companies or the stock market are good or bad, there will be prosperity and decline."

“Reflected on these graphs is a curve that fluctuates up and down around a central mean straight line!”

"The cycle will not stop. It will continue to rush from the bottom to the top, then fall from the top back to the bottom, and then start a new cycle. Just like a bull market, there will be a bear market, bubbles and crashes."

After David showed the charts in his hand one by one in front of the camera, he handed it to Mr. Tianniu and shrugged.

"These charts will also be sent to everyone along with the videotape."

“But from these charts and data, it’s not difficult for us to find out~”

"We cannot accurately predict the future!"

"It's a probability distribution problem. Some things have a high probability of happening, and some things have a small probability of happening."

"But until the moment it actually happens, no one knows what will happen tomorrow or what the outcome will be."

"This is the same as the weather forecast. Even if the TV station says it will rain tomorrow, it may end up raining,"

"It is this kind of uncertainty that brings great risks to the market. It may cause us to lose money on our investment, or it may cause us to miss the opportunity to make big money out of fear."

"But that doesn't mean we don't know anything about the future."

"Because of the existence of cycles, some things are destined to happen, but the time is uncertain. We investors can seize this trend and make the possibility of making money a little greater."

David returned to the table, put his hands back on the table, and continued.

"Investing is actually a lot like buying a lottery ticket."

"Most people buy with their eyes closed. Making and losing money all depends on luck~"

"Excellent investors will judge whether it is worth spending money to buy this lottery ticket by calculating the probability and return!"

"Suppose: There are 100 balls in the jar, some are red and some are green."

"Now you have to make a bet with your friends, guess what color the next ball taken out of the jar will be?"

"At this point, if you don't know the exact number of red balls and green balls, you can only guess."

"In other words, the two colors of balls in the jar each occupy half. No matter which color you bet on, the probability of guessing is the same. If you want to win, you can only rely on God's blessing."

"Both of these situations are actually not suitable for participating in the game, only when we know very well that there will definitely be more than one color of balls..."

"For example, if there are 30 red balls and 70 green balls in the jar, then we only need to divide the bet into many parts, and then keep betting on the green balls. Our probability of winning will be much higher~"

"To sum up, it is very important to know the number of eyes of the balls in the jar!"

"If we all want to win more and lose less in the investment game, we must know more information."

“Understanding the economic operating cycle is the biggest investment driver that can help us grasp the future.”

"When it is in the following stages, the probability of making money will be higher~"

"First, the economy and corporate earnings are more likely to move upwards than downwards."

"Second, investors should be clear-headed and calm, rather than optimistically following the trend."

"Third, investors are very concerned about risks, and it is best to be very nervous and often overly concerned about risks."

"Fourth, the market price is very cheap."

David faced the camera, lowered his raised left hand, and smiled with a hint of smile in his eyes.

“When others are greedy, I am fearful; when others are fearful, I am greedy.”

"This actually takes advantage of investors' emotional cycles."

"When most people are extremely panicked, the probability of us investing and making money will be much greater."

"But if everyone is particularly greedy, and even the shoe shiners in front of the New York Stock Exchange are talking to customers about stock trading, we have to be vigilant and careful..."

(Note: In the bull market of 2014 and 15, even a 70-year-old grandmother who never traded in stocks made money from the stock market.)

"Following the crowd does not mean being right!"

“In a market where only a few people can make money, we have to make ourselves a conscious minority.”

“At different positions in the economic cycle, the probability of making money is different!”

“If the possibility of future increases is high, then we can invest more funds to improve the offensive nature of the investment portfolio~”

"On the contrary, if it is more likely to enter a bear market in the future, then we have to reduce our positions and increase the overall defensiveness of the portfolio."

“So, how do economic cycles work?”

"Please be patient and watch a commercial, we will continue later!"

David looked at the camera, deliberately paused for a few seconds, and caught a glimpse of his mentor, Professor Bartlet, with his hands folded in front of his chest, frowning and staring at him, then continued with a smile.

"Okay, I seem to have gone off topic~ There are no sponsors at all, and there are no commercial breaks..."

"Let's get back to the main line!

"Just now we talked about the game of investment market probability. When the economic cycle is at different positions, the probability of making money is different,"

"Under the influence of the cycle, asset prices are like a curve rushing from the trough to the top of the mountain, and then falling from the top of the mountain back to the trough, rising and falling around a central point average line~"

"This process is called mean regression."

"If we are not aware of the existence of cycles, we will often feel as if something big has happened because of the sudden rise and fall of commodity prices."

"Some investors will even be affected by market sentiment and make some irrational behaviors."

"But as long as we understand the cycle, it will become a money-making tool for us, and investment will become simpler~"

"Many things in the world have cycles. They are independent of each other and influence each other."

"When different cycles resonate, for example, when several cycles reach low levels, the probability of an upward trend will be much higher."

"Mark Twain once said that history does not repeat itself in detail, but the process does have surprising repetitions and similarities."

"I think this sentence is particularly appropriate to describe cycles."

"Although most of the details of the cycle are slightly different, the process is similar every time~"

"The lessons from the past have been too profound, and everyone will be very careful and afraid of history repeating itself."

"People's memory of investment and financial management failures is generally extremely short."

"Some of the lessons may have only been learned a few years ago, but investors are patting their chests and saying that this time is different. Technological innovation can change the world!"

"And they will also mock those who are cautious, thinking that they are old antiques and do not understand the great miracles created by finance."

"But the truth is, nothing is different."

“The old rules still apply, stock prices won’t go sky high, and few things will fall worthless.”

"As you can see from the charts I just showed, basically every ten years is a big cycle."

"That is to say, each of us must stay in the market for at least ten years and witness a complete cycle before we can have a deeper understanding of investment."

"Precisely because most people are not aware of the existence of cycles, this further strengthens the influence of cycles."

"Take the investor sentiment cycle as an example. When they become optimistic, they will buy in the market and push the price up to a certain level. Some investors will begin to doubt how long the high price can be maintained. Why don't they run away? It’s not that I can’t find a buyer.”

"Affected by this pessimism, they will rush to sell and drive down the market price."

"Here, it sounds like I'm talking nonsense..."

"But the reality is that many investors are really stubborn, unable to control their emotions, and unable to make calm judgments on backwashing."

"When the price of something goes up, they think it will keep going up, and it will only go up and not go down."

"When asset prices start to fall, they think it's over, the market is over, and it will never rise again."

"At this time, if we can use public sentiment as a reverse indicator and think reversely and follow the trend, we can seize the opportunity to make money."

When David said this, he seemed to feel a little tired. He turned around and walked behind the table to sit down, resting his arms on the table, and continued casually.

"Periods always rise slowly and fall quickly."

"It takes many years for a big bull market to reach a high level. Once the cycle reverses, the market will plunge like a waterfall and will soon cause panic, just like the crisis of 1907."

"Of course!"

"I also have to admit that there are too many factors that affect the cycle and economic activity, and the randomness is also obvious."

"So cycles are not a panacea. We can only improve the winning rate of investment by mastering regularity."

"But sometimes coincidences can be mistaken for periodic patterns."

"For example, in recent years, a point of view has become popular in the Wall Street market~"

"If... a certain bond is issued for almost two years, it is particularly prone to default. Investors and traders are afraid that they will become a scammer, so they will sell those bonds that are approaching the dangerous period in advance~"

"But if these corporate bonds do not default, they will buy it back and continue to hold it."

"But they seem to have forgotten that other traders are not fools,"

"Since everyone knows that the closer the crisis period is, the greater the risk of default, then who will take over?"

"For bonds that have passed the crisis period, everyone wants to buy them and the price will definitely rise to the sky~"

"After all this hard work, the result is that you sell low and buy high, and you become the victim of a big mistake."

"I think this type of pattern is unreliable. Events only happen by chance."

David scratched his head with his hand and smiled at the camera.

"Before, I said that cycles can also be divided into many types~"

“And what everyone is most concerned about as investors is definitely the economic cycle!”

"Economic cycles are sometimes called business cycles."

"It is the basis of the corporate profit cycle and the market cycle. The faster the economy grows, the more likely it is that corporate profits will increase, and stocks will rise accordingly."

"After the end of World War II, the U.S. economy entered a period of rapid growth."

"The long-term trend is close to an upward straight line, but if you look at the historical sub-lines, you will find that there will actually be economic downturns every once in a while."

"For example, in the 70s, the United States experienced a period of economic stagflation for nearly ten years."

“If the economy is not doing well, it will be difficult for the stock market to dance on its own~

"I recently read a statistical report from the New York Stock Exchange. Several people who read the report expressed very pessimistic sentiments about the stock market this year."

"Let us extend the timeline a little longer. In the 45 years from 79 to 24, the S&P 500 only fell in a few years. Among them, the increase exceeded 16% in 15 years and exceeded 30% in seven years. Persistence The investors who came down all made huge profits.”

"So, as long as you can find that the people around you are extremely pessimistic and no one is optimistic about the market, you should be vigilant and consider whether you should be more greedy."

“Because, this may be the opportunity to gain the highest returns in the future!”

David picked up the juice cup and took a sip. His eyes caught a glimpse of the expression on his mentor's face softening a little, and he continued with a smile.

“A country’s economic growth is mainly determined by two fundamental factors: birth rate and labor productivity.

"These factors change very little from year to year, so the economic growth rate is stable over the long term."

"However, the actual growth of economic indicators every year will not completely obey the orders of the long-term trend, but it will partially deviate from it every once in a while~"

"This is largely due to short-term economic fluctuations caused by people's psychological emotions and behaviors."

"Traditional theory holds that if a person's job and income are relatively stable, then his or her consumer spending will not change much."

"But the supporters of this conclusion obviously did not take into account the complexity and desire factors of human nature."

"Just like last fall, many workers were particularly afraid of unemployment and salary cuts, and had no choice but to reduce investment and consumption. This caused another serious recession in the U.S. economy,"

"But if the stock market rises or housing prices rise, investors will feel that they have become richer, even though the assets in their hands have not been sold at all, and what they have earned is only a floating profit on their books~"

"But they will also become more generous. They want better food when they have nothing to do, and they will buy whatever they like."

"For example, in the 50s after World War II, houses and cars sold very well, and many top salespeople could earn commissions of tens of thousands of dollars a year."

"This phenomenon is called the wealth effect."

“Under such psychological influence, sometimes economic growth will have self-fulfilling expectations. If everyone believes that the future economy will be good, then they will spend more money and invest more, and then the economy will really grow very fast. "

"vice versa!"

"Also~"

"Inventory quantity will also affect the short-term economy. Companies overestimate market demand, produce too many products, and end up unable to sell them, which will lead to an increase in inventory and a substantial accumulation of inventory."

"When inventories reach a certain level, companies will reduce production and remove inventory."

"This process of increasing or decreasing inventory is what I call the inventory cycle."

“It will occur about once every three to four years and will cause a short-term rise or fall in a certain industry, such as grain, eggs, coal, steel, etc.

"So what actions will the government take in the face of the ups and downs of the economic cycle?"

“What will happen to corporate earnings?”

“How can investors control their own psychological emotions?”

"How do we capture the opportunities?"

"Before I answer these specific questions, I want to reiterate something here."

“It is extremely difficult to clearly define the starting point of a cycle!”

"Because history is composed of a series of events that have chain reactions, causes and consequences."

“In order to understand what is happening now, we must first understand all the historical background that formed the event!”

"For example: sugar in commodity futures is a very typical cyclical futures variety."

"The cycle of price fluctuations is generally a three-year bull market and a three-year bear market, alternating with each other."

"The increase or decrease in production in major sugarcane producing areas around the world is an important reference indicator for judging the sugar price cycle."

"So, as long as we compare sugar production and futures prices in recent years, we can identify several key characteristics~"

"First, there is a positive correlation between futures price trends and the production cycle."

"If you want to focus on long-term sugar trading, you must pay close attention to the production cycle changes in the main sugarcane producing areas."

"Second, the duration of the bull market for sugar is generally shorter than the bear market."

"The main reason is that the confirmation point for bearish to bullish transition generally needs to wait until the market determines that output will decline."

"This time is usually in the first quarter of the second year when production declines."

"In other words, the main sugarcane-producing areas of Brazil suffered floods at the end of last year. Everyone already knew the news, but they were unable to get an accurate data on the decline in production. They could only wait until the sugarcane entered the harvest season and the purchase price of the sugar mills increased. Determine the magnitude of the decline in production..."

"So, the turning point in the sugar futures price cycle from bear to bull is the time to determine the amount of production reduction!"

"The turning point from a bull market to a bear market generally occurs in the middle and late stages of a bull market. Everyone will have a tacit understanding to make advance arrangements in the market when prices gradually fluctuate and fall into a bear market."

When David said this, he looked down at the draft in his hand, drew on it a few times with a pen, and then continued.

"Now that we have talked about the cyclicality of sugar futures, we might as well spend a little more time and talk about the more cyclical commodity futures, eggs!"

"Eggs, which we eat almost every day, can be roughly divided into two categories as commodities~"

"Fresh eggs without any processing and egg products based on fresh eggs."

"According to the statistics I collected, their sales accounted for about 83% of fresh eggs and 17% of egg products last year."

“From the perspective of buyers’ consumption structure, families’ daily needs for fresh eggs occupy a dominant position in the market, while consumption of various eggs as supplementary materials or ingredients occupies a secondary position.”

“The main factors that affect egg prices include transportation prices, the total number of laying hens, the total number of laying hens and replacement numbers, feed prices, the price difference between retired laying hens and broiler chickens, and labor costs, which have increased the most in recent years. etc."

"The profit from laying hens is generally expressed in yuan/pound, which refers to the net income after deducting the breeding costs + eggs + the sale of culled chickens."

“So, when we invest in different egg futures contracts, we must first study the price trend of egg futures in previous years and find its price fluctuation cycle rules, and then combine the contract time, market spot price, demand, etc. Breeding costs, as well as the factors I mentioned just now that affect the price trend..."

. . .

David sat behind the desk, holding only two pages of drafts in his hand, talking "eloquently" about everything from sugar and egg commodity futures to corporate profit cycles. .

From the Federal Reserve's interest rate cut, which will lead to a reduction in corporate loan costs, when it comes to the corporate bond cycle, it also extends to the credit cycle. .

From the fact that the Federal Reserve's interest rate hikes may lead to a sharp increase in non-performing bonds and debt, we also talk about the unique market cyclicality of the real estate market, which has the highest leverage ratio. .

About an hour later~

David finally paused, went to the kitchen to pour a glass of juice, and went to the toilet for a quick refreshment. .

When he returned behind the desk and was about to continue speaking, Professor Bartley spoke.

"Why don't you reorganize what you said and publish it?"

"Currently, there is no generally recognized theory as a reference for domestic research on economic cycles, stock market cycles, commodity price cycles, and corporate operating cycles."

“If you compile it and publish it, it will definitely receive more attention than Monetary Finance!”

David glanced at the camera that had been turned on and saw Elena nodding silently and shaking her head, indicating that Professor Bartley's words had been recorded. .

He rubbed his chin a few times with his hands out of habit. After thinking for a moment, he smiled.

"You're right!"

"But my time and energy are limited now, so I can only complete the main content of "Money and Finance" first, and then consider compiling a "Cycle" to provide everyone with investment reference."

"Yeah..." Professor Bartlet nodded and waved his hand to let him continue.

David glanced at Toby and Mr. Longhorn sitting next to him, and smiled at the camera in front of Elena.

“Next, let’s start with the story of Jesse Livermore’s two consecutive failed investments in cotton~”