Chapter 9 Chapter 8 Strategies for Stock Market Investment

How to become an invincible "super ant" in the stock market? It is often seen that people who invest in stocks get rich overnight.Everyone wants to get rich overnight, but the problem is that they don't know how to do it.So if a quick-rich guy publishes a book, people who want to learn from him will flock to buy it.But, does that person really know how to get rich overnight?Is he just relying on luck? Although it is possible to get rich overnight through a certain method, following the methods that have been successful does not guarantee overnight riches.In fact, if you can understand the secret of getting rich overnight by reading a book, then there will be no people in this world who are poor because of lack of money.Even from the research results of economists, there is no way to get rich overnight.Starting from this question, we will discuss the efficient market hypothesis, which is one of the most common theories in economics.

In fact, in reality, there is no way to get rich overnight.An important premise of the efficient market hypothesis is that all stock investors assume rational behavior.Then, if there are investors who act irrationally, they can get rich overnight.Behavioral economics shows that people don't always behave rationally.This means that there may be ways to get rich overnight in reality. No matter who you are, once you step into the stock market, you must remain extremely rational.Use all the information available to choose the right investments.Once you accidentally choose the wrong investment object, it is very likely that the money will be "wasted" in an instant.Therefore, it is very necessary in investing to assume that people are rational.Even people who are less rational in other circumstances will obviously try to be rational in the investment markets.

When all investors act rationally, stock prices fluctuate around a certain level.In order to understand the meaning of this sentence, we should first understand how to determine the value of stocks.In principle, the value of a company's stock is determined by how much dividends it can get in the future by holding it now.Because the dividend is not paid out in one year, it is paid over many years, so the "fluctuation" of the dividend is used to express it. For example, the dividend of a company's stock has a present value of RMB 50,000.That is to say, assuming that you own it now, you will get an income equivalent to the value of 50,000 yuan in the future.This means that, as an asset, that stock is worth RMB 50,000.If expressed in economic terms, the net value of that stock is RMB 50,000.

So, what is the relationship between the actual trading stock price in the stock market and this net value?Stocks, like commodities in general, are priced by the interaction of demand and supply.There is no guarantee that its price and net worth are exactly the same.For example, if demand for a certain stock has skyrocketed for any reason, the price of that stock may be higher compared to its net worth. A good example is the phenomenon we call bubbles.Tulips, which are no different from onions in value, once cost hundreds of dollars per plant.In the same way, we often see the price of a certain stock skyrocket to unimaginable levels.The net value of the stock is only a theoretical benchmark, and the actual stock price will rise or fall relative to this benchmark.

However, this phenomenon cannot last long if all investors participating in the investment market are perfectly rational.Rational investors feel no need to buy stocks with higher prices than net worth.Plus, the investor who owns the stock thinks that selling it even earlier would have made a profit.That is to say, the stock is oversupplied, and the result of such a change is that the price is lower than the net value.When the stock price is lower than the net value, the demand and supply will change accordingly, and the price will rise to the level of the net value. Therefore, it can be predicted that the price of the stock fluctuates around its net value.Then, it is impossible for an investor to get rich overnight if he buys the stock of a certain company.If you want to get rich overnight, unless you buy stocks with a lower price than your net worth, that's impossible.This theory is called "efficient market hypothesis" in economics textbooks.This theory implies that, assuming that all investors are perfectly rational, as a result, no one can get rich overnight.

This does not necessarily mean that in reality there is no way to get rich overnight.If you have some inside information, maybe you can get rich overnight.For example, a certain pharmaceutical company has successfully developed a new drug, which can make huge profits. Only one person knows the news, and the others don't know it at all.The moment the news spreads, the stock price is obviously going to rise. At this time, if you have already bought that stock, you can get rich overnight. Information of this nature is known as inside intelligence and using it for profit is illegal.If inside information is used to obtain profits at will, one can imagine what will happen.A man who runs a business can earn all the wealth, and of course his relatives and friends will surely become rich as well.Meanwhile, investors who knew nothing suffered huge losses.

When all investors act rationally, stock prices will fluctuate around their net worth, so it is unlikely that any one investor will get rich overnight by buying shares in a particular business. If you are a model citizen, don't try to use inside information to get rich overnight.To become rich like that is to actually become rich by stealing.Look around us and we often see people who become rich in that way because they are lucky enough not to go to jail.But what is the use of earning money by such mean means? Let's find out how to get rich overnight through legal means.If there are a lot of irrational people among the investors participating in the stock market, then the door is opened to get rich overnight legally.The efficient market theory believes that it is impossible to get rich overnight, assuming that all investors are completely rational.However, realistic investors can never be completely rational.Therefore, there is no need to be locked into the pessimistic tone of the efficient market hypothesis.

If, as behavioral economics says, there are many irrational investors, the stock price will deviate greatly from its net worth.At this time, you should actively buy stocks whose prices are much lower than your net worth, and sell stocks whose prices are much higher than your net worth. This is the trick to getting rich overnight through legal means.Now you can see that there are unexpectedly many opportunities to get rich overnight. Observing the real stock market often sees that if all investors are perfectly rational, such strange phenomena cannot occur.The existence of this abnormal phenomenon shows that the efficient market hypothesis based on the premise that all investors are rational economic people cannot correctly explain the reality.If you actively use this abnormal phenomenon as an opportunity to generate income, even if you don't know whether you can get rich overnight, it is possible to obtain benefits.

The first abnormal example is the phenomenon that the prices of two stocks that are essentially the same can change at will.There is such a situation that two companies appear to be completely different companies, but due to the same shareholding structure, they can be regarded as completely identical companies in essence.Typical examples are Royal Dutch and Shell. The two businesses, each operating as a separate entity, decided to split the combined profits in a 6:4 ratio.Because the profits are combined and distributed according to a certain ratio, the two enterprises are essentially the same enterprises.It only exists as two independent enterprises on the surface, but it has the nature of a comprehensive enterprise in essence.

For example, in 2008, Royal Dutch Company created a profit of 700 million US dollars, and Shell created a profit of 300 million yuan.In this case, not both companies own their profits independently, but as pre-negotiated: Royal Dutch has $600 million and Shell $400 million.Dividends are then paid to Royal Dutch and Shell shareholders out of their respective share of the profits. As mentioned earlier, the net worth of a stock is determined by the volatility of its dividends.So if profits are split 6:4 between the two businesses, it is clear that people who own 1 share of Royal Dutch will pay 1.5 times as much dividend as people who own 1 share of Shell.

As stated in the efficient market hypothesis, if the actual stock price is the same as its net value, then the market prices of the two companies' stocks should continue to maintain a ratio of 1.5:1.This means that 1 Royal Dutch share should be considered exactly the same as 1.5 Shell shares.Just as identical twins have exactly the same faces, identical stocks should have exactly the same price.However, this only exists in theory, and there is a big difference between reality and theory. From the actual stock price trend analysis results, it can be seen that there is a big difference from the theory.In fact, between 1980 and 1995, the stock price ratio of the two companies barely remained at 1.5:1.Compared with 1.5:1, the ratio between the two may be 10% higher or 40% lower.If the ratio between the two happens to be 1.5:1, the profit they make becomes zero.That is to say, there is such a phenomenon that the prices of substantially identical commodities will vary greatly depending on the place of transaction. Even for the same stock, the price will vary depending on where it is traded.This difference can be found in many stocks besides the above example.Astute investors can take advantage of this opportunity to make a lot of money, for example, when Royal Dutch shares are twice as expensive as Shell, or more.In theory, this level should be 1.5 times, but in reality it has been increased to double the level for some reason. Let me give you a more concrete example.The price of 1 share of Royal Dutch stock is now $200, and the price of 1 share of Shell stock is $100.And, this year, Royal Dutch company's dividend per share is $30, and Shell's dividend per share is $20.Because the two companies negotiated to distribute profits in a ratio of 6:4, dividends should also be paid in accordance with this ratio.Although stock price changes have nothing to do with this ratio, dividend fluctuations always follow this ratio. In this case, an investor sells 1 share of Royal Dutch stock and then uses that money to buy 2 shares of Shell.As a result of this, the bonus yield went from $30 to $40.Selling 1 stock and buying others increased the dividend yield by 33%.Clearly, investors would sell Royal Dutch shares and buy Shell shares.Needless to say, the price of Royal Dutch shares would fall and that of Shell would rise in the process. If you find that there is a difference in the price of such stocks, it is a favorable investment strategy to buy a large number of relatively low-priced stocks like Shell.The lower the buying price of the same commodity, the easier it is to make a profit.Obviously, Shell's stock price will rise soon, so those who bought Shell shares can sit back and benefit. If this situation is followed, the phenomenon of different stock prices will soon disappear.However, the same price gap could actually be seen to remain for a considerable period of time.For this reason, we cannot fail to question the assumption that investors are perfectly rational.Real investors are far from what is assumed in economics textbooks.In any case, if you are a quick-footed investor, you can use this situation as a good opportunity to generate income. In reality, there are other ways to earn income by investing in stocks.An example of this is a stock investment strategy that focuses on value stocks.The so-called value stocks refer to stocks that are currently at a low price based on past stock prices, earnings, dividends, and book value.That is, value stocks are stocks that have a lower price than their net worth. Strategies that focus on investing in value stocks are called "value investing strategies."According to the analysis of financial experts, the value investment strategy has a very high rate of return.It is a well-known fact that Warren Buffett, known as the master of stock investment, has accumulated astonishing wealth because of the value investment strategy. Given past stock prices, earnings, dividends, and book value, etc., the current price is at a low level. Such stocks are called value stocks, and strategies that focus on investing in such stocks are called value investing strategies. The value investment strategy is a strategy of reverse operation with the investment method of irrational investors chasing ups and downs.According to the analysis, irrational investors overreact to the information in the stock market, and once the stock yield is low recently, they will be disappointed and plan to sell it.If you are a rational investor, you will not only look at the latest rate of return, but will evaluate it as a whole.However, there are many irrational investors who only pay attention to the recent low yield information and plan to sell it based on this. If similar irrational investors increase, the price of a certain stock will fall below the net value.Therefore, people who buy these stocks may get high returns.In fact, stocks with not-so-bad prospects were sold because of irrational investor overreactions; while others made profits by buying the stock.This is how behavioral economists explain the good results of value investing strategies, and it sounds quite plausible. Another way to earn income from investing in stocks is the "momentum investing strategy."It refers to buying stocks that have had high yields over the recent period while selling stocks that have yielded low yields.The reason why I bought it was because I saw that the stocks with high yields in the recent period will have a trend of higher yields in the short term in the future. In this sense, there is momentum.In other words, using this method can obtain high yields above the average level. The momentum investment strategy is not only effective in the United States, but also in other countries, which has been confirmed through many studies.The reason for the high returns of momentum investing strategies can be found in the fact that stock prices do not respond in a timely manner to all available information.As stated earlier, if all available information is properly reflected, the stock price becomes equal to its net worth.If the information related to it is not reflected in a timely manner, the stock price will be different from the net value, and an investment strategy with a higher rate of return than the average level can be adopted. According to the analysis results of the investment market trend, it is impossible to accurately reflect the information related to the stock price within 1 to 12 months.For example, if there is news that a certain company's earnings are improving, the stock price will not rise significantly in the short term.On the contrary, over the period of 3 to 5 years, a tendency to overreact to information can be seen.If the news that a certain company's profitability is improving repeatedly appears, the stock price will tend to rise excessively in the long run. An investment strategy that buys stocks with high yields and sells stocks with low yields.Seeing that stocks with high yields will also increase in the future, there is momentum in this sense, and use this fact to invest and make profits. Therefore, if it is a stock with a high yield in the recent period, the possibility of a high yield in a short period of time in the future is also very high.Because the current price of that stock does not fully reflect the improvement in earnings, it is likely to rise higher in the future.On the contrary, if it is a stock with a low yield, the stock price may continue to fall.Momentum investing strategies take advantage of this to achieve above-average returns. In fact, the common ground of the methods of getting rich overnight explained above is that there are quite a lot of irrational investors as the premise.Because there are irrational investors, there will be anomalies like the above, which can be used to obtain above-average returns.Such an opportunity would not be possible if all investors were perfectly rational, as is assumed in economics textbooks. We should express our sincere gratitude to all the irrational investors in this world. "Korea Economic Daily" interviewed people who got rich overnight by investing in stocks, and produced a series of reports "Biography of "Super Ant"".Here, let me introduce their investment secrets, although this secret does not guarantee that we can also get rich overnight.Obviously, in addition to this secret of their success, special abilities that are difficult to express in words also played an important role.However, if we understand the secrets taught by successful people, at least there will be no loss. First of all, the secret of Mr. A’s success is value investing, which has made 12 billion won with an investment of 70 million won.His secret is to buy stocks that are undervalued compared to the actual value of the business, and then sell when the stock price reaches the actual value of the business and make a profit.He found that the shares of Woongjin Coway, the largest water dispenser leasing company, had an actual value of 20,000 won, while the share price at that time was only 4,000 won at best.Mr. A, who invested all his 70 million won in shares of Woongjin Coway, has a return of more than 300% in just one year. Mr. A proposed the following value investment strategy.First, you should buy stocks of companies with high asset values.If there are a lot of assets, even if the company goes bankrupt, there is risk protection.Second, it is best to buy stocks in companies that pay high dividends.He explained that high-dividend companies refer to excellent companies that have established shareholder priority policies. Thirdly, companies with high growth value should be invested, that is, companies with a high reinvestment ratio of operating income and high growth potential should be prioritized for investment. However, he pointed out that for so-called value investing, it is definitely not the best policy to just hold stocks unconditionally for a long period of time. If the stock price has risen a lot in a short period of time, it is best to sell even if the target is not achieved.Because if you switch to other stocks that are relatively undervalued, more profits will be created.In order to find stocks that are more undervalued, one should frequently trade in the stock market. Mr. B, who became rich overnight by investing in blue-chip stocks, described the advantages of blue-chip stocks in this way: First, large companies can only operate with certain strengths, so they are relatively safer.Secondly, because blue chips are often bought and sold by overseas institutions and individuals, they have good liquidity.Moreover, the stock price of blue chip stocks fluctuates greatly recently, and higher returns can be obtained. When Mr. B first started investing in stocks, he had a painful lesson. In 1999, he gave up his job in an insurance company and switched to investing. In just one year, the principal of 50 million won was reduced to 2 million won.He didn't even know the most basic common sense of investment, and he just tried his best. From then on, Mr. B began to formally learn investment knowledge.However, the trick he found was surprisingly simple.Now, he mostly buys stocks that are heavily traded on the radar screen; moreover, he times his trades when the 5-day and 20-day moving averages show them. After realizing such an investment secret, Mr. B, who had always suffered losses before, began to make considerable profits.He wanted to verify his own strength, so he decided to participate in the 2005 Korean Stock Investment Practical Competition. He won the first, second and third prizes in the three competitions, which proved that his strength is by no means ordinary.In the Hanwha Securities Competition, he achieved a rate of return of 1202%, which shocked everyone. Mr. C became the focus of attention as a "hero" who earned 100 million won with 4 million won at the age of 20.He achieved great success through short-term trading.His secret is that if you enter a stage where you can realize income in the short term, once the stock generates income, sell it immediately to cash out.Stocks are not buying types, but buying "opportunities", which is his consistent proposition.For example, when the stock price enters the rising stage, it is best to use this method-buy as soon as possible, and sell when you get a profit. In selling at a loss, that is, selling at a loss, we found other secrets of his earning 5 billion won in just 10 years of stock investment.If the loss reaches 2%, don't look forward and backward, and sell it unconditionally. This is his hard principle.Not wanting to sell at a loss is just an excuse. In fact, the biggest enemy of investors is themselves. This is his philosophy.He believes it is absolutely necessary to sell at a loss to secure cash, and then, to move that cash into stocks that will rise in price in the future. Interestingly, Mr. C actually holds a negative attitude towards value investing.He believes that through value investment, a 30% rate of return in three years is not considered a lot of benefits.If you take into account the opportunity cost of investment, the rate of return is even less high.And he firmly believes that a lot of money can be made through short-term stock trading.No matter who you are, you firmly believe that the method that brings you success is the best method. "Korea Economic News" compiled interviews with the "Super Ant" series of characters, and at the same time summarized 10 secrets of successful investment, namely the following "Top Ten Enlightenments of Successful Investment". Even knowing the secrets, putting them into practice is difficult, and that's what needs to be overcome.To be honest, if it were so easy to make a lot of money, no one in this world would be depressed because of money. 1. Enter when the stock is rising. 2. From now on, pay attention to the 5-day moving average and the 20-day moving average. 3. Pay close attention to policy trends and news. 4. Hold on to even small gains temporarily. 5. Use both hands and feet. 6. Only invest in foolproof stocks. 7. Long-term holding is also an excellent strategy. 8. Find an investment method that suits you. 9. If you can't sell at a loss, leave the stock market. 10. Restraint, and restraint.