Crisis, crisis, opportunities in crisis

Comprehensive analysis of Qile Club.

I. Dunpont's Evergreen Investment Method

A book about Dunpont, "Contrarian Investment: Dunpont's Evergreen Investment Method," was written by his niece Lauren Dunpont.

Dunpont managed the Dunpont Growth Fund, which was established in 1954. If $10,000 was invested at that time, by the time Dunpont retired in 1992, the $10,000 would have grown to $2 million over 38 years, with an annualized return of 14.5%, outperforming the market by 3.7% on average each year.

Dunpont is the most famous contrarian investor of the last century. His investment approach is summarized as: buying at the low point of the Great Depression, selling at the peak of the Internet, and maneuvering skillfully between the two.

One of Dunpont's most classic battles was the "Century Gamble" in 1939.

In September 1939, Germany invaded Poland, followed by Norway, the Netherlands, and Belgium surrendering to the Nazis in the following months. In May 1940, Germany attacked France, and the Dow Jones Index hit its lowest point.

Dunpont then embarked on a century gamble. He identified 104 companies with stock prices below $1 and borrowed $10,000 from his former boss to invest $100 in each of these companies. By the spring of 1942, as the war situation improved and the market rebounded, the U.S. economy began to recover, and 100 out of the 104 stocks were profitable.

II. Crisis Brings Opportunities

In the days following the resumption of trading in the U.S. stock market after the September 11, 2001 attacks, various panic sentiments continued to rise.

The New York Times

"A Heavy Blow to the Economy"

The attacks that destroyed the World Trade Center and severely damaged the Pentagon plunged the U.S. economy into an unprecedented stagnation, with a high likelihood of a severe economic recession.

The Wall Street Journal

"Terrorist Events Spark Fear of Economic Recession"

Washington News - Tuesday's terrorist bombings are likely to plunge the already fragile global economy into a widespread recession, destroying consumer confidence and disrupting fundamental business functions such as aviation and financial markets.

"Terror Attacks Deal Deadly Blow to the U.S., Dim Hope for Asian Economic Recovery"

On the morning after terrorists attacked the U.S., the world economy had already begun to suffer the repercussions of the attacks. While it could not compare to the atmosphere of terror hanging over Manhattan and Washington, the day following the terrorist events undoubtedly became a day that people in the global business community could not forget.

"Terror Attacks Deal Deadly Blow to the U.S., Dampen Hope for European Economic Recovery"

The world financial system experienced a severe shock on Wednesday, as industries and decision-makers began to realize a harsh reality: the large-scale terrorist attacks on the U.S. are highly likely to plunge the global economy into recession.

The Economist

"When the Economy Holds Its Breath and Waits"

The attack on the World Trade Center was casually described as damaging one of America's most famous symbols of capitalism. However, for a world economy that was already fragile, did this attack also increase the risk of its collapse? While the U.S. stock market ceased trading this week, other global markets immediately reacted, and their tentative answer seemed to be a probing "yes."

3. Learn from Warren Buffett

On December 27, 1999, the cover story of Barron's was titled "What's Wrong with Warren?", discussing Buffett's performance in the market in 1999:

Berkshire Hathaway's lackluster performance is not only reflected in its operations and investments. Frankly speaking, Buffett, the former stock god who was already 70 years old in 2000, is increasingly seen by more investors as too conservative, even outdated.

In December 1999, The Wall Street Journal also had another article, in which a social worker who became a day trader boasted about her stock trading skills, wanting to compete with Buffett.

A social worker in Redondo Beach, California, who had never bought stocks before, thought she was not suitable for the stock market. "I didn't know what the market was all about," she admitted. One day, while driving, she heard on the radio that a local company "had signed a seemingly good contract with Russia."

After making more inquiries, she opened her first brokerage account and bought 100 shares at $12 per share. That company is now WorldCom. Her initial $1,200 is now worth $16,000, just a part of her $500,000 investment portfolio including Red Hat, Yahoo, General Electric, and AOL.

"My money doubled in two years. I was amazed, aren't you? It's unbelievable. You can't make this much money doing social work."

Middle-class investors have emerged as a powerful financial force in the 1990s, driving their capital net worth to grow at an unimaginable speed along with Wall Street tycoons, continuously setting new market records.

Indeed, individual investors now account for 30% of the trading volume on the New York Stock Exchange, compared to less than 15% in 1989. Walk into any workplace, whether it's an office building, car dealership, hotel, or factory, and you're likely to see people enthusiastically discussing investments.

The social worker's stock picking success led her to only do social work on weekends, dedicating weekdays to full-time stock trading. "I buy a few stocks every day and sell some stocks," she said. Her goal is to earn $150,000 in trading profits each year to build a financial reserve that will ensure a worry-free retirement for herself and her husband.

During the investment process, she has summarized several effective investment principles, such as "following the trend" which has become deeply ingrained—focusing on "value" stocks is completely outdated. "Those people all 'say buy and hold'," she said, "If a stock keeps falling, I think you'd better get off the ship early." As for experience, "You must sell the losing stocks, not because I am an expert, the stock will rise. If my stock is different from what the stock market recorder reports," she added, "I will not continue to hold on. I keep the loss within a range of 10%."

Learn from it, Warren Buffett.

IV. Time is our friend, but timing is not

Only 5% of the time the stock rises - wait for the wind.

Excluding the best 10 days (only 0.25% of the entire evaluation period), the average return decreased by 22% (from 11.1% to 8.6%); then remove the next best 10 days, the return rate decreased by another 20%; remove the best 30 days (only 0.5% of the entire evaluation period), the return rate dropped from 11.1% to 5.5%, a decrease of over 50%.

The average return of the S&P 500 intuitively shows that: all market returns in the past 75 years were achieved in the best 60 months, accounting for only 7% of the 800-month period. We all know a simple yet valuable fact: if you miss these wonderful 60 months, you may miss almost all the investment returns that three generations could accumulate.

△Stocks rise only 5%

Investing $1 in the S&P 500 index fund, if you miss the best 90 trading days in the past 10 years, you will lose 22 cents; if you miss the best 60 days, you can only earn 30 cents - but if you hold on, you can earn $5.59. (Interestingly, if you can avoid the worst 90 trading days, you can earn $42.78 in 10 years.)

In a 72-year investment process, excluding the best 5 days, the cumulative compound return will be halved (without considering reinvestment of dividends). For example, if an investor misses the best 10 days in the past 109 years (out of 39,812 days), they will miss two-thirds of the total returns over these years