The essence of trading: one buy, one sell (buy low, sell high)
The essence of capital: leverage (varies in height)
Apart from common loans, financing, margin trading, futures, etc., any commodity carries its own leverage property, even cash, under an annual CPI of 5%, has a leverage property of 100:5. If you can't outrun leverage, your capital is devaluing.
Sima Qian has a profound saying in (Records of the Grand Historian: Biographies of Merchants): 'Wealth is achieved through the end, and the principal is maintained.' This essentially explains the nature of capital operation.
(1) Capital operation 1: using time as leverage (low leverage)
Uncle said: Time determines everything.
Case 1: On December 1, 1990, after the Shenzhen stock market's major expansion of new stocks, Mr. A and the private equity fund he built suffered heavy losses. Among the stocks they sold at low prices, some were taken over by Abao, who keenly sensed the opportunity, bought low, and within two years, the chips grew from hundreds of thousands to millions, with nearly a tenfold increase.
Case 2: We, the workers, have studied for decades, working hard to earn money through technology, ultimately relying on time costs (leverage) to gain monthly capital income (salary).
(2) Capital operation 2: using space as leverage (high leverage)
Explicit capital space leverage:
Case 1: Abao has a 1:1 allocation to take over the clothing company, with a cost price of 10.88. Qiang Mujie made the operator raise the stock price from 18.8 to the opening price of 10.88 set by Abao, causing Abao's assets to be completely wiped out, and when Abao wanted to sell the stock in hand, no one was willing to take it.
Case 2: In early 2024, a large number of snowballs occurred, and the leverage of the snowballs was about 1:4.
Implicit information space leverage:
Case 1: At the end of 1993, Ms. Wang, with her sensitivity to foreign exchange, took orders from Walmart at an ultra-low price, specifying dollar settlement. On New Year's Day 1994, the country announced the integration of foreign exchange, making the foreign exchange differential a thing of the past, and the RMB exchange rate soared, turning Ms. Wang's orders from losses to profits overnight.
Case 2: Abao took over the clothing company, which was originally prepared to announce 10 to 5 or 10 to 10 news. Ultimately, it failed to materialize. In reality, many companies' annual reports, quarterly reports, etc., are known in advance, and insider trading belongs to this category.
Case 3: Uncle had a thorough grasp of all clothing manufacturers in the Jiangsu, Zhejiang, and Shanghai areas, flight schedules, Huanghe Road, Nanjing Road, etc. If it weren't for Abao, Ms. Wang would have been doomed.
Implicit technical space leverage:
Case 1: On the day before the Mid-Autumn Festival in 1993, Qiang Mujie, leveraging his foreign experience, took the lead in handling the first merger case in the Chinese securities market - the Baoying War, allowing the operator to buy a large amount of stock in 601 Yingzhou Industrial, ultimately achieving 200 million profits through technical stitching.
(3) The humanity under capital operation: Analysis of Abao's clothing company's failure.
Marx's classic statement in (Capital) is as follows:
If there is a 10% profit, it will be guaranteed to be used everywhere; with a 20% profit, it will become active; with a 50% profit, it will take risks; for a 100% profit, it dares to trample on all human laws; with a 300% profit, it will dare to commit any crime, even risking execution.
Abao has a 1:1 allocation to take over the clothing company, with a cost price of 10.88.
Three conditions for a margin call:
(1) The withdrawal of Xiao Ningbo, who once shared a bond jumping into the river (30 million);
(2) The cancellation of the mortgage contract by Li Li, who once had mutual feelings (30 million);
(3) The clothing company, which once helped obtain the listing qualification, releases low expectations for the annual report (no dividends, no stock distribution);
If any of these conditions are not met, Abao would not face a margin call. However, the fact is that every condition was met.
Human nature appears weak under capital. The capital market does not believe in tears (human nature).
In fact, Huanghe Road is also another capital market.
(4) Capital operation 4: Achieving wealth through the end, maintaining the principal.
At the end of the film, Abao said: Only land and tomorrow coexist. Abao gave up 3 million shares of Qishan Coal Power’s original stock or cash, choosing to exit the capital market and retain his land.
Abao made a lot of money by achieving wealth through the end, starting to layout his business years in advance, and bought a large piece of land, which is the principal.
Sima Qian's original meaning:
'Achieving wealth through the end' refers to accumulating wealth through the development of secondary industries such as commerce and industry, as these industries often have higher profit margins and more flexible operational methods, potentially bringing substantial economic returns in a shorter time.
'Maintaining the principal' refers to returning to agriculture or basic industries after accumulating wealth, shifting investment focus to relatively stable, enduring, and guaranteed industries such as land and farmland, in order to preserve and stabilize the wealth that has already been acquired.
Abao did it.
Only land and tomorrow coexist; this phrase comes from a book - (Gone with the Wind). This book is Xue Zhi's favorite, and to have common topics with Xue Zhi, I believe Abao must have read it many times.
Xue Zhi has always wanted to change her fate. Ultimately, under the rotation of fate, Abao relied on this phrase from (Gone with the Wind), maintaining the principal, successfully avoiding the super stock market crash in 1994 (the market dropped from 1,000 points to 300 points), lasting 7 years. If Abao had insisted on staying in the stock market that year, he would have suffered even more.
During the same period, China completed the reform of distributing housing to commercial housing, and land values soared.
Let us look forward to each winter passing and spring coming.
(5) Insights and reflections on investment and trading from (Gone with the Wind)
1. 'You know the Empire State Building in New York? It takes an hour to run from the bottom to the top, but only 8.8 seconds to jump down. This is the stock market. If you want to make money from stocks, you must first learn to lose.'
The story of (Gone with the Wind) begins with the stock market. The stock market is ever-changing and full of risks; uncertainty is the norm in the investment market. Calmly facing market fluctuations and uncertainties is the first lesson for investors.
Investors must understand and accept the possibility of losses to treat investments more cautiously, avoiding the blind pursuit of high returns while neglecting risks. If one cannot accept short-term losses, it will be difficult to reap long-term market returns.
In the final plot, Abao says, 'In these two years, I've hit rock bottom and seen the ceiling; I am content. In the future, if there is an elevator, I'll take it; if not, I'll climb the stairs; I can do both.'
Sometimes it’s the same in the stock market. After finally making some money, you could lose it all in a major retracement. Therefore, when making asset allocations, keep some margin for diversification, and remember not to put all your eggs in one basket.
2. 'After the great heat, there must be a great cold. Remember, this is a rule.'
This expresses the cyclical nature of seasonal changes. Whether in macroeconomics or in the industry at a medium level, there are cyclical variations.
There is no market that only rises without falling, nor one that only falls without rising; mean reversion is an unchanging rule in the investment market. Most investors believe that the cycles of market rises and falls are behind economic cycles.
Peaks and troughs are the norm; no one can always sail smoothly. In times of success, we need to remain humble and alert to avoid arrogance; in troughs, we must maintain a positive and optimistic attitude, seeking opportunities and hope.
3. 'The market is always right; the only wrong one is yourself. If you rush too fast and escape too slowly, you will definitely suffer.'
The market is a place where the wisdom of the crowd gathers; market prices are formed by all participants, and each rise and fall is an angle and thought process. The formation of each price is the result of many participants selling and buying together. As investors, we must respect the market and revere it.
4. 'Doing business is not about who earns more, but about who survives longer. Do not think of climbing to the top in one step; take it step by step, steady and steady.'
Life is a marathon; living long and running far is more important than running fast. In the investment field, pursuing quick returns and short-term profits is often a risky approach. While there are people who achieve high returns in every cycle, looking at the extended time frame, investors who can earn double every three years or tenfold in ten years are rare.
5. 'I only do things I understand; this way, I know what I'm busy with. For things I don't understand, I'd rather choose to miss out.'
For investors, the most important thing is not the size of their ability circle, but how to identify the boundaries of that circle. Correctly recognizing one's boundaries and admitting ignorance also requires courage.
The industries and businesses of listed companies in the stock market vary widely. The internal and external factors affecting operations are different, and the specialized knowledge involved is diverse. Only invest in companies you understand, avoiding unknown traps.
6. 'Today's sun does not dry tomorrow's clothes. Time determines everything.'
This profoundly reveals the ruthlessness of time and the unpredictability of life. The sun rises and sets daily, seemingly repeating, but each day's sun is new; it cannot illuminate the past or warm the future. We can only live in the present and feel the passage of time.
Whether it is the rise and fall of business giants or the joys and sorrows of ordinary people, none can escape the grasp of time. The rise and fall of Uncle and Abao, the fates of these characters, all signify the ruthlessness of time and the helplessness of life.
Time treats everyone fairly; where time is spent, opportunities will emerge. At the same time, time is also the greatest uncertainty. Especially in investment, being early or late can lead to vastly different results. Only by grasping and cherishing the present can one seize their opportunities.
7. 'The heart can be warm, but the head must be cool.'
Market sentiment is often irrational and unpredictable; periodic market frenzy is common in the stock market, especially during bull markets when most investors enter a state of frenzy.
Stay away from market sentiment, make calm and rational judgments, and never make investment choices and decisions under extreme market sentiments.
Having the ability to think independently is important for investors. To survive in this fiercely competitive market, what you can truly rely on is your continuous learning and practice.
8. 'Only by seeing the future can there be a future.'
Pessimists are correct, optimists move forward. Investors should be visionary, not only looking at the present but also anticipating future trends and changes. Patience in waiting for investment results is crucial; only with a deep understanding of the market and unique insights can one seize future opportunities.
For value investing, it often requires crossing over longer time cycles, inevitably encountering various setbacks or even failures, personally experiencing long periods of sideways fluctuations, declines, emotional frustrations, anxieties, or even self-doubt. Enduring it while ignoring the disturbances of short-term market fluctuations and holding quality assets long-term allows for enjoying the returns from the long-term appreciation of assets.
Brothers, when you watch (Gone with the Wind) next time, you might read more truths about wealth from 'Shanghai Business Wars.'
Let's encourage each other!