Some say that stock trading is the simplest thing, as long as one sells high and buys low, they can make money.

I have no idea who said this, but I really want to find them and give them a good beating.

In reality, the number of times people buy high and sell low far exceeds the times they sell high and buy low.

This seemingly easy method of stock trading actually hides traps, causing countless retail investors to lose their hard-earned money.

Many people say that the problem lies in the mentality of retail investors, who hold onto their stocks stubbornly, not selling until they make a profit.

However, with the improvement of the delisting system, if one holds onto the wrong stock stubbornly, it could lead to a precipice.

So the key issue is how to buy at a low position, to buy cheap stocks, only by buying low can the chances of winning be greater.

So how to find the real low point, or the bottom range, to increase one's chances of winning?

Let's think step by step about a few questions.Why do poorly performing stocks and stocks that have "exploded" (i.e., experienced a sudden and significant drop in value) have no so-called "low point" and may continue to fall endlessly? Because, from a valuation perspective, they have no low point to speak of.

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So, the first criterion for defining a low price is not that the price is low, nor that it has fallen a lot, but that the valuation is low. Only a low valuation is the hard truth.

But here comes the problem again.

Valuation is a floating thing, and many times, when we look at the valuation, it seems very low, but in fact, the valuation is not low, but rather very high.

Therefore, it is very important to have a standard rule for judging whether the valuation is low.

And this rule is actually an unwritten rule.

The dimension for judging the valuation is never the current performance, but the future performance.

For example.After 2022, the leader in photovoltaics, Longi, began to decline continuously.

In the second quarter of 2023, it achieved a net profit of 5.5 billion in a single quarter.

Many people do not understand why it has been falling despite such good performance.

However, by the first quarter of 2024, it had lost 2.3 billion in a single quarter.

In simple terms, looking back from the peak of performance, it is all downhill, and there is no chance to turn back.

Since future performance is uncertain, the valuation itself is also uncertain, and low valuation has become the so-called illusion.

This place involves several dimensions of rules.

First, it is the stability of performance.

According to performance, listed companies can be roughly divided into two types.

One is the cyclical industry, which has obvious industry ups and downs, showing a cyclical pattern.Then the performance in some years is increasing, and in some years it is declining.

In this industry, we need to prioritize the judgment of the current cycle of the industry and look for turning points.

Usually, capital will consider the matter of leaving half a year or a year before the turning point appears.

Similarly, for industries with increasing performance, capital will speculate on valuation in advance, and what is seen is the valuation situation after 2-3 years in the future.

If a listed company has a growth potential of 3-5 times in the next 2-3 years, it is not too high to give a valuation of 100 times in advance.

You can see that the previous batch of big bull stocks, BYD and Ningde, were actually all speculated in this way.

Because looking at the current stock price from the future, it will appear to be cheap and the valuation is low.

The second is the safety of assets.

If a listed company is in a traditional industry and does not have too much potential.

Then it can be measured from the perspective of asset safety, that is, the price-to-book ratio, whether the valuation is reasonable and whether it is at a low position.However, the concept of price-to-book ratio is quite elusive.

Put simply, net assets contain many hidden pitfalls.

Let me give you an example.

A company built a factory, from start to finish, from purchasing land to constructing the plant, to buying equipment, the expenditure amounted to 2 billion.

But if this company no longer wants to operate this factory and wants to sell or dispose of it,

The depreciation of the land, demolition, and various other costs add up, and it would be lucky to recover 500 million to 1 billion.

In the company's assets, accounts receivable carry the risk of not being collected.

So-called goodwill, as well as some intangible assets, are quite illusory.

There are also some equity investments that carry the risk of blowing up.

Therefore, net assets themselves have hidden pitfalls, and the assessment of the margin of safety requires professionals to analyze bit by bit.The following article can be translated into English as:

One can only speak generally about some risk points, such as the high level of both deposits and loans, and issues like the debt ratio of net assets.

In comparison, industries with better capital liquidity and higher dividend rates can use the price-to-book ratio to judge the level of valuation, looking for relatively low points.

Valuation, why is it an estimate, is because this thing itself is not solid, at least it is a floating range.

Reasonable valuation refers to a range, not a specific price.

Many potential information is unknown to retail investors, so the judgment of a low price is not very accurate.

Buying in batches can effectively reduce the corresponding risk, rather than betting on speculation and trying to bottom fish.

Finally, let's talk about the low points under the resonance of cycles.

The so-called resonance of cycles, to put it simply, is that in the low period of the stock market, the market is more likely to appear at low points.

There are indeed stocks that stand out, but they are extremely rare.The so-called periodic resonance refers to the synchronization of index cycles and individual stock cycles.

The important factor affecting the index cycle is not actually performance, but capital.

Any cycle with a shortage of capital can be identified as the counter-cyclical phase of the index.

In this cycle, the market will continue to decline, and there will be a significant problem with the liquidity of funds.

It is precisely because of the shortage of liquidity that many stocks will face a large selling pressure due to insufficient capital to take over.

The game of existing stock will cause some companies that originally had intrinsic value to become cheap due to liquidity issues.

To put it bluntly, if the capital cannot take over the market, the stock price will naturally slowly decline.

The so-called killing of valuation, or the common white horse sacrifice to the sky, actually occurs under the liquidity crisis.

And when it comes to a bull market, the liquidity is just the opposite, with capital everywhere, and stocks that are clearly not cheap also appear to be cheap.

This is the principle of picking the tallest out of the short ones.In a counter-cyclical phase, one can purchase quality goods; it is during market downturns that one can unearth gold.

The so-called undervaluation occurs when the market lacks liquidity.

When no one is buying and prices are low, if you have money, you are a big tycoon with the opportunity to make a fortune.

Most of the time, when we talk about timing, we are actually referring to the timing on a large scale, not on a small time cycle.

In the eyes of large capital, the so-called unwritten rules are to buy stocks in a bull market and to stay away from the market in a bear market.

Because even high stock prices in a bull market can become low.

And in a bear market, low stock prices can also become high.

However, for retail investors who cannot stand the loneliness, the criteria for judging high and low are very vague, and they trade in both bull and bear markets, naturally increasing the probability of losing money.

The opportunity for timing in the overall trend comes only once every few years, and it is definitely worth waiting patiently. When the time comes to seize it, one must be brave enough to grasp it.