In early February last year, the Shanghai Composite Index fell to 2,635 points, and the Hang Seng Index once reached 14,600 points, and the market pessimism reached its peak. However, blue chip stocks, which had been adjusted for three years, also started to rise from then on. The share price of Tencent Holdings, the leading stock in Hong Kong stocks, rose by more than 100% in more than a year, and the leading stock of A-shares, Kweichow Moutai, also rose by more than 30%.

This week, A-shares entered a period of volatility, especially on Friday, when the market opened lower and fell throughout the day, with the ChiNext Index leading the decline and the Shanghai Composite Index falling below 3,400 points. As of the close, the Shanghai Composite Index fell 1.29%, the Shenzhen Component Index fell 1.76%, and the ChiNext Index fell 2.17%. In fact, if you look far enough, every pessimistic moment in the stock market may be a moment worth buying or holding on.

Although the current leading A-share and Hong Kong-listed stocks have not returned to the moment when their stock prices were boiling in 2021, their valuations are already one-third of what they were then, and their dividend yields far exceed the yield on ten-year government bonds. The triple benefits that investors enjoy from buying stocks at pessimistic times - the rise in stock prices driven by valuation, performance, and buybacks are still on the way.

There are two things you need to train yourself on when investing

As value investing guru William Bernstein said, investors need to develop a good sense of self-discipline, and keep a clear head when others are not self-aware. However, you don't need to predict when the market will rise or fall, don't try to predict the top and bottom of the market, and don't try to sell at the high point of every rebound. There are only two things you really need to remember:

First, there will be exciting technological innovations in the near future, and your neighbors and friends will soon go crazy and make much more money than you. However, this situation will only last for a while. All you need to do is do nothing and stand by. Follow your own plan. Don't exchange your traditional industry stocks and bonds for stocks of new technology companies.

Second, when the market is in chaos, you will hear other voices, but this time they are bearish, "It's almost over, only fools hold stocks." Again, all you need to do is do nothing. Or, you have enough courage to take out some cash and buy more stocks.

The same is true for A-shares. Although investors are deeply frustrated by the nearly four-year adjustment of the stock market since the beginning of 2021, the emergence of the high point of A-shares in 2021 is the result of the four or five consecutive years of bull market of blue-chip stocks after the deep adjustment of A-shares in 2015. Don't do things that will bring you long-term benefits, and don't go to places where there are many disputes. No market will always move in one direction.

Low market conditions provide high returns

Investing is counterintuitive. A long-term sluggish market actually provides high returns, but a long-term prosperous market often means that the stock market's return rate is gradually decreasing and the investment risk is gradually increasing.

As for the U.S. stock market, the stock prices in 1932 were so low that the dividend yield was as high as 10%, and it remained above 6% for 10 years. The stock prices of almost the entire stock market were lower than the face value of the stocks, and one-third of the stocks were sold for less than one-tenth of their face value. In the bear market of 1973-1974, the average price-earnings ratio of the stock market was about 7 times, and one-third of the stock prices had a price-earnings ratio of less than 5 times.

But the returns in such a bad environment were surprisingly high. In the 20 years from the market bottom in 1932, the average annual return of the US stock market was as high as 15.4%; and in the 20 years from the market bottom in 1974, the average annual return of the US stock market was 15.1%.

The sentiment of the securities market is similar to the movement of a pendulum. The time the pendulum stays in the middle position is very short. People spend much more time at the end point than at the midpoint. In fact, it is the movement towards the end point itself that provides the power for the swing back. When investors rush to rush in, the securities prices reflect high risk and low return, but when investors rush to flee the stock market, the stock market provides a rare low risk and high return for courageous investors.

Behind the bigwigs fleeing the US stock market

On the evening of February 22, Buffett's Berkshire Hathaway released its fourth quarter and full-year performance report for 2024, and the annual letter to shareholders was also disclosed at the same time. As of the end of 2024, Berkshire Hathaway's cash reserves (including short-term investments) reached a record high of US$334.2 billion, almost doubling its cash reserves from the end of 2023 (US$167.6 billion), and the proportion of cash reserves to assets reached the highest level since 1998; at the same time, the company continued to sell stocks in 2024, and its stock holdings (including other investments) fell to US$302.7 billion, a 21% decrease from the end of 2023.

The stock god Duan Yongping recently expressed a similar view and has already sold some of his positions. Duan Yongping said in January this year that US stocks are a bit expensive.

Valuation is the baton of investment tycoons. Buffett escaped the top three times in 1969, 1986 and 1999. After he escaped the top, the US stock market experienced violent fluctuations and even a long bear market. This is not because Buffett is good at guessing the top, but because the valuation is no longer attractive. Buffett bought the bottom of the US stock market in 1974, 1988 and 2008. At this time, the stock market was in mourning, and buying good companies at cheap prices made him rich afterwards.

After experiencing a decade of bear market following the dot-com bubble in early 2000, the U.S. stock market has entered a 15-year bull market since 2009, with the valuation of the U.S. stock market far exceeding the historical average by the end of 2024. The dynamic price-earnings ratio of major U.S. market indices such as the Dow Jones Industrial Average is 33.41 times, with a corresponding dividend yield of 0.41%; the corresponding price-earnings ratio of the Nasdaq Index is 46.56 times, with a dividend yield of 0.32%.

The value depression of A-shares and Hong Kong stocks has attracted the attention of international funds. At the end of 2024, the A-share dividend index will correspond to 7.3 times, with a dividend yield of 2.96%; the CSI 800 index will correspond to a price-earnings ratio of 14.4 times, with a dividend yield of 1.74%; the ChiNext index will correspond to a price-earnings ratio of 33.23 times, with a dividend yield of 1.06%.