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1/ The Federal Reserve is the de facto central bank of the world. In the long run, because the Fed promises to continue to increase the money supply and maintain an annual inflation rate of about 2%, the world’s best assets will continue to increase in price relative to the fiat currency manufactured by the Fed at zero cost.
2/ The definition of high-quality assets can be defined from two perspectives. One is that there is a strong de facto monopoly in the industry, and the other is that there is a long-term probability that there will be several times, tens of times, or even higher returns. But this does not mean that high-quality assets will not have a greater risk of price retreat or even bankruptcy in the short term compared to legal currency.
3/ As for why high-quality assets have such great potential and resilience, the reasons behind them are extremely complex. Each industry requires specific analysis of specific circumstances, and I will not list them here.
4/ From this perspective, most corporate bonds and wealth management products are essentially long-term inferior assets, with interest of up to a few percent in good times, and may lose all of their principal when bad.
5/ Even if you buy the best quality assets, there are many temptations and thousands of reasons to get you off every day:
Tencent’s game revenue is not good this quarter;
Amazon sells fakes again, Amazon has become familiar again, and Amazon has lost money again this quarter;
Tesla has another car accident, Tesla is on fire again, Tesla charging station is on fire again, Tesla’s delivery number this quarter is lower than expected, Tesla has quality problems and needs to be recalled;
Musk sucked *****, Musk scolded the Securities Regulatory Commission again, Musk scolded the California government again, Musk wanted to fight against the Alameda County home order and forced to start work;
Tesla killer A said that it will launch a competing product in three years, Tesla killer B said that it will be fully electrified in five years, Toyota said that the future of electric cars without hydrogen energy, the price increase is too high than I think. Got it, a successful person who shorted the subprime loan and made a fortune announced that he would short it, a successful person who made a fortune short on Enron announced that he would short it, and a successful person who made a fortune short Lehman Brothers announced that he would short it;
Mentougou was stolen by black coins, Bitcoin was forked, and the Bitcoin network was too blocked and the cost was so high that no one would use it. Bitcoin core wouldn’t let a few of us change the protocol casually. It’s too evil, a famous investor He said it was rat poison. The governor of the Bank of England, who loves zero-cost money printing, said it had no future. A certain futures exchange forced liquidity on a large scale and completely lost liquidity, leaving only US$20 million in the buying price to zero. Now, the Bitcoin killer that can support greater transaction volume is coming. Quantum computing to crack the elliptic curve algorithm is coming soon (although controllable nuclear fusion has not come yet), and the centralization of mining machines leads to 51% attacks. and many more
6/ For good assets, the temptation to cash out profits is very great. It seems that the short-term view is correct. Many high-quality assets have indeed experienced price retracements of more than 50% or even more than 80%.
7/ The price of a high-quality asset with fiat currency as a unit has a large retracement, and it has nothing to do with the quality of the asset. It reflects more the short-term mood and expected changes of market participants, and it also includes the finances of central banks. Other complicated factors such as policy changes. More often, there is no special reason, that is, there are more sellers than buyers.
8/ But in the long run, the operation of replacing high-quality assets with inferior assets is likely to make big mistakes, which is a kind of “bad result with asymmetric results”. Would you exchange half of your dollar assets for Mexican pesos because the Mexican peso appreciated against the dollar in the short term? If not, why?
9/ The so-called asymmetry of the result is good, that is, “the worst case loses a little bit, and the best case makes several or even dozens of times”; the result is asymmetry bad, that is, “the worst case loses (or loses) hundreds of times. Yuan, at best, only make one yuan”
10/ Even if the result is asymmetry bad, it still does not prevent some people from making short-term profits, and sometimes they are very profitable. Human nature determines that any temporary success will only deepen the blind self-confidence, and continue to intensify until the operation mistakes and huge losses.
11/ And mistakes are inevitable in mathematics. Assuming that every time the bag is dropped is an operation to buy back at a low price after Anri, the probability of correctness is 60%. If you do it twice, your probability of correctness is only 36%, which means that you have a 64% probability of being correct twice. Would be wrong! In fact, if a trader can make a correct judgment 60% of the time, he is almost close to Superman.
12/ Once you make a mistake, it is almost impossible to correct the mistake due to the price-setting effect of human nature. For example, if you sell a high-quality asset for 100 yuan, if the stock price rises to 110 yuan and does not fall back, you will be psychologically out of the game. You are unwilling to repurchase high-quality assets at a high price, so you are getting farther and farther away from high-quality assets.
13/ The farther and farther the distance is, the more reluctant and the less likely it is to replace inferior assets with high-quality assets. For high-quality assets, the cost of recovering mistakes will rise exponentially over time.
14/ As a result, high-quality assets have risen several times, and after tens of times, for most people who sell prematurely, they will always be missed and missed forever.
15/ Any investment behavior that is “bad with asymmetric results” will prevent you from becoming rich in the long run. Only by constantly taking high-quality assets to replace better-quality assets with greater return potential/stronger monopoly is the “asymmetric result”.
16/ If there is no real consumption need, when you want to settle down to the fiat currency, please review it again. In the interview with CBS, the head of the Minnesota branch of the Federal Reserve Bank of Minnesota, teacher Neil Kashkari was deafening in March 2020. The announcement: “The Federal Reserve has an unlimited supply of cash.”