Which strategy is most profitable, chasing the “rising stars”, abandoning the falling ones, or holding?

 

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Dear Readers,

Thank you for coming here!

If you do investing, I am sure you have wondered which strategy is most profitable.

There are tons of discussions, researches, theories, and even bets regarding this. 

And there still does not seem to be a dominating answer.

I read a report from the China Merchants Bank on 2020 investment returns, which I think can provide a good reference for you.

So I would like to share it with you in this blog.

First of all, if you are not familiar with the China Merchants Bank, it is the fastest growing bank in China with the most advanced technology and best customer user interface, with probably the best investment value. 

I still keep my account with them.

In 2020, the size of the funds managed by the Bank was around 700Billion RMB. It is said to be the largest in the market.

In my opinion, the size is significant enough to make the report “reasonably representative”.

From Internet, translated by Author

So going into the report, the average return for all investors is 24%, which is great. This would make the perfect advertisement for them.

Do take note that this was in 2020, so before the drop caused by the profit-taking in Feb/Mar.

If we look at the different groups of investors, investors who hold achieved the highest return of 39%, 63% higher than the average.

Followed by the investors who DCA at 32%, 33% higher than the average.

Investors who try to time the market, either by pursuing the funds on the rise or clearing positions before the pandemic to avoid the fall achieved the lowest, at 11% and 20% respectively, well below the average.

I think a big reason is the deep and narrow “V” we experienced last year. No one would expect it to rebound so fast. 

So those who sold would not have time to re-act. And those who pursue would have come in at higher prices.

So again, timing the market is hard.

Photo by Anto Fredric on Unsplash

So where was I in this?

Haha, I cleared my positions after the pandemic rebound, at about 5% above the pre-pandemic high.

At that time, I believed that the fundamental to support the market valuation was not strong enough and I was not drawing any salary and could not afford much risk.

So I missed a large part of the upward trend…

Well, life goes on and so must the learnings.

Happy investing!

Till next time!