Mr. Hu Meng's sharing at the Peking University Value Investment Class in 2025

Teacher Chang: Hello, students. Today we are very fortunate to have the famous investor and my friend, Mr. Hu Meng, with us. Mr. Hu Meng has been active in the Chinese capital market since the 1990s. His investment strategy is "slightly" different from ours. His investment experiences and life stories are detailed in his book "Wind and Investment Essays." After he gifted this book to me, I haven't read it carefully, and I feel very sorry for that. Therefore, I also hope to take this opportunity today to learn from his experiences and lessons.

Mr. Hu Meng and I hit it off immediately, and our basic understanding of the world view is consistent. Although we follow different investment strategies, the most important thing in investing is that we need to "know what we know and know what we don't know." Based on the fiduciary responsibility, we must have a very honest, rational, and objective way of thinking. In my interactions with Mr. Hu Meng, I have deeply experienced the qualities of an investor that he possesses, and these excellent qualities are the foundation of his success. Now, let's invite Mr. Hu Meng to share with everyone.

Hu Meng: Thank you for the invitation, Brother Chang Jin. This is a value investment class, and it seems a bit inappropriate for me to talk about speculation here. But then I thought, considering the careers that the students participating in the course may pursue in the future, which might primarily involve speculation, I believe it's still necessary to discuss it.

I have watched Brother Li Lu talk about value investing in this class, and he spoke so well, like a towering mountain in the field of value investing. I can only play the role of a small river beside Brother Li Lu's mountain and talk about speculation.

Students at Peking University have many opportunities to hear outside experts give lectures, which is a great opportunity, but you must pay attention to the speaker's background. If someone who is into investments talks about speculation, it's like a chef who specializes in Sichuan cuisine talking about Japanese cuisine; I think there's no need to listen.

So let me introduce my background first. The fund I manage is called Feng He Asia, which is a $6.5 billion long/short hedge fund that has been recognized as the best long/short hedge fund in Asia.

As speculators, we take pride in being speculators. Over the past 13 years, we have only had one year of losses (-4.8%), while the other 12 years have been profitable. This achievement is difficult for investors to accomplish, which is a point of pride for us as speculators. In the past ten months of this year, we have only had one month of losses, with the other nine months being profitable. The month we lost (April) only had a loss of 0.35%, allowing us to manage our net worth more smoothly. Among hedge funds with over $5 billion, our returns this year are among the best in the world. Therefore, I believe it is appropriate for me to share about speculation with you, while it is more reasonable for Brother Li Lu to talk about investment. Based on your potential future careers, I think you are more likely to face careers in speculation. Why do I say this?

For example, if the job you are looking for is in a secondary market fund, even if you are unwilling to speculate, if you lose money this year and lose money again next year, when you go to talk to your boss about value investing, saying "What is the intrinsic value of this stock I hold? How foolish the market is, and how right I am." You might indeed be right, and three or four years later you might be correct, but you will be fired, and you won't have the chance to prove yourself.

Well, if you say, "I won't go work a job; I'm coming out to start a business." But if you come out to start a business, and there's no boss to fire you, your investor will fire you. When the investor loses 10% this year and another 10% next year, the investor will quickly redeem, and you won't have the chance to prove your value investment. If you say your dad gave you 10 billion, you don't need to raise funds, you don't have to work a job, and it's fine if you lose all 10 billion. Even so, your employees will leave because when you have two consecutive years of losses, employees won’t have bonuses due to the high watermark, and seeing this situation, your employees will also "fire" you and go work for another fund. You have learned a lot about value investing from Teacher Chang and have dreams of value investing, but it’s possible you don't have the opportunity to practice value investing. Before I talk about speculation, let’s first define what speculation is? What is investment? What is the difference between the two? My definition is quite strict, but my friend Teacher Chang may not agree. I'll finish first, and we can discuss it later offline.

If your returns in the stock market depend on the price difference of the same stock at different points in time, that is speculation. Generally speaking, earning returns through the price difference of the same commodity at different times is speculation. But why does this price difference occur? I will explain later. What is investment? Strictly speaking, your money enters the company's balance sheet, and your investment returns depend on the continuous increase in the company's intrinsic value, realized through dividends rather than fluctuations in market prices; that is investment. However, these two concepts are not completely distinct; there are overlapping areas between them.

If you hold stocks for a long enough time, say eight to ten years, it is primarily the intrinsic value of the company that affects the price, and the market sentiment accounts for a relatively small proportion. In this case, your speculation tends to lean towards investment. Similarly, some so-called private equity funds that claim to be investing only enter based on the judgment of trends and later realize profits by selling old shares or during an IPO, which actually also falls under speculation.

There is a difference between investment and speculation, but the boundaries are somewhat blurred. For example, Buffett buys and sells in the secondary market, but he holds for a long enough time, and his returns mainly come from the increase in the company's intrinsic value, which is considered investment; the contribution of market sentiment to the returns is not significant. However, if you sell after one or two years, the impact of market sentiment on the stock price far exceeds the influence of intrinsic value itself on the stock price, which is speculation. Why can a stock double in a month? Is it because the intrinsic value doubled? Not necessarily. We currently hold a stock in the memory industry that has tripled in just over a month; can its intrinsic value triple in just over a month? Impossible, there must be market sentiment involved.

Running a business is not that easy, but stock prices constantly fluctuate between one and two times; it is not the intrinsic value but rather market sentiment that is fluctuating. This volatility presents opportunities for speculators. My profession is to make money through long and short positions based on stock market fluctuations. Therefore, I believe I am speculating, not investing.

If your future career evaluation mechanism depends on the fluctuations of stock market prices, it is highly likely that you will end up as speculators.

What help is there in clearly understanding the differences here? It is very helpful. If you are a speculator, it can be very serious to consider yourself an investor. As I mentioned earlier, you might get fired by your boss, have your investors redeem their investments, and even get fired by your employees.

But I want to emphasize: excellent speculators must first understand investment and intrinsic value.

Although you may be engaged in speculation in the future, it is very meaningful for you to take Teacher Chang's value investment course. This is related to the pricing of stock prices. In stock prices, part of it is fundamental, and part of it is emotional. The fundamentals are what you learn in Teacher Chang's class. What is the proportion of these two factors? It relates to the length of time; the shorter the time, the higher the proportion of emotional factors. Within a year, the emotional factors may account for more than 50%. If it is over ten years, the influencing factor of stock prices may only be one, which is mainly the fundamentals.

To be an excellent speculator, one must also understand the intrinsic value of the company. Borrowing the analogy of a person walking a dog, the speculator's final profit or loss depends on the dog's position, but you cannot ignore the person's position. If we understand using the simple E (Earnings) and P/E (Price/Earnings Ratio), researching E means you are doing value investment research, but that does not mean you do not need to study P/E. It is very difficult for E to triple within a year; achieving a percentage increase of several dozen is already quite good. However, the change in P/E within a year can be greatly influenced by emotions. Because Teacher Chang is present, based on the respect for Teacher Chang, I have downplayed this emotional influence a bit. If Teacher Chang were not present, I would say that within 12 months, the fundamental impact on stock prices might only be 30%, and the price is mostly determined by emotional influences. So, you need to clarify the changes in emotions.

To become an excellent speculator, you first need to understand the 30% fundamentals and know where people are located. This way, during the process of tracking the changes in the position of the dog, you can determine whether to trade against the trend or with the trend. Trading against the trend is a very good method, but it is not a positive term; rather, it is a neutral term. Sometimes you need to trade against the trend, and sometimes you need to trade with the trend. That’s why speculating is not easy.

Excellent investors have a clear understanding of the company, but may not understand the market. However, in one or two years, it is the speculators who set the prices, and it is the speculative market that evaluates your success or failure. If you are a fund manager, every trade you make will be judged by the market at the end of each year based on your gains and losses. You cannot argue with clients by saying, "The market is wrong; the profits of the companies in my portfolio are still rising, and the book value is still increasing," but the stock price is falling. Therefore, even excellent investors must learn from speculators to understand the market.

If you understand and accept what I am saying, you will realize that you are very likely to become a speculator in the future. Perhaps deep down you have also silently accepted speculation, even though it is in a value investing class. Right? So how can one become an excellent speculator?

The first point, which I think is very important, is to question the market. Although the market ultimately determines your success, you must always question the market. If you simply believe in the market, it will be difficult for you to become an excellent speculator. When the market gives a pricing, for example, a company is given a 20x P/E, you need to question the market: is this sustainable? Will it be 10x or 30x in the future? Is the market's valuation too high or too low? When someone tells you that Nvidia is a good stock, you need to think about whether Nvidia's earnings and valuation are sustainable. If you have done a DCF model for Nvidia, you should check whether many of the assumptions in the DCF are reliable. Question the market! When the market is abandoning something, you should also consider whether the market is overreacting. If you want to become a successful market player, you must first question the market.

The second point is more important than the first, which is to doubt oneself. Do not trust yourself too much; always maintain a sense of skepticism. In my 35-year career, I have seen many excellent fund managers who appear to be filled with doubt at first glance. Conversely, those fund managers who seem overly confident often perform poorly in the future. In my company, when I hire people, I look for whether this person is too confident; generally, I do not hire those who are overly confident.

The so-called heavy-weight stocks in our fund are only 5% or 6%. Some funds in the market casually go for 10% or even 15%, which is impossible for us. Many new colleagues often come to challenge me, saying: "Boss, the company I recommend has a high level of certainty, why can't we buy more? Why can other funds buy 15%, but we can't buy more?"

In answering this question, I would say, where does high certainty come from? Actually, it comes from your judgment. And who are you? You are human. Investment is about the future, and human judgment about the future is mostly unreliable. So here, don't trust yourself too much, because investing is a profession that challenges time. Time is in God's control, and when humans think, God laughs. Humans think about the future using probabilities, but God does not plan the future using probabilities, so in the face of time and the future, one must learn to be humble.

Although we sometimes say research when we make investments, this is actually an overestimation of our work. If you are doing research in physics, calling it research is no problem; you can precisely send a spacecraft to Mars. What we do in investing is actually just guessing, and any conclusion we reach needs to be based on a large number of assumptions, which are constantly changing. Therefore, the most important thing in speculation is to doubt oneself.

Why have we achieved 12 years of profitability in the past 13 years? Because I constantly doubt myself, and whenever situations arise that exceed our expectations, we cut our losses. For example, when our entire fund experiences a 2.5% drawdown, we strictly cut our losses.

Due to our highly decentralized nature, we operate across 7-8 markets and 7-8 industries. We simultaneously go long and short, and for us, a 2.5% drawdown is relatively small. Many domestic secondary private equity funds, lacking hedging, may experience a 2.5% drawdown as a routine occurrence. If our fund sees a 2.5% drawdown, we would reduce our total position by 20%. What does this mean? Simply put, if we experience a 10% drawdown, we have already cut our positions four times, leaving us with just over 30% of our overall position. When we are left with just over 30%, it becomes easier to control losses, which is the main reason why we have been able to keep our drawdowns well-managed in the past. The premise of stop-loss is based on doubting oneself.

Because humans have limitations, our understanding is quite one-sided. Our comprehension of a company may not necessarily be correct, let alone the fact that companies are constantly changing. I often joke with many fund managers, saying: "Even the CEO of a publicly traded company doesn't know what the profits of their enterprise will be like next year. Why should you, an external investor, confidently believe what this company will be like next year or ten years from now?"

I previously heard someone talk about ultra-long-term investment. I said, this is the language of financing, not the language of investment. You are trying to fool investors; you can't invest like this. Do you know where this company's ultra-long-term future is? I dare say you don't know. When you talk to investors about ultra-long-term investment, you yourself are not clear about it; isn't that self-deception? So we need to doubt ourselves. I think it is important not to be overly confident, whether for individual investors or fund managers. The reason I can maintain self-doubt is that I believe in God. When you believe in God, you will realize that humans are very small.

I have gone through many bear markets and faced a lot of uncertainty; I know the fragility of stock analysis. It's like blind men touching an elephant; you touch the elephant's leg and think it's a tree, you nurture this tree (invest) hoping it will grow strong. But suddenly the elephant moves, your tree is gone, and your investment is lost. The uncertainty at the corporate level is somewhat better, relatively smaller; the macro level is even more uncertain. Our company does not advocate discussing macro factors because there are too many factors that influence the macro environment, which is a bigger elephant. Some people confidently grab only two or three factors, draw conclusions about the future, and engage in long-term investments.

Even if there are many influencing factors for businesses in the future, how much can we truly understand? Even if you are an entrepreneur, you may not be able to determine the situation of your business ten years from now. Besides economic factors, there are also political factors, not only the policies of a single country but also geopolitical issues. Those of us who speculate neither believe in ourselves nor in the market. We can only prepare for the worst. Even if there is only a 30% chance of rain, we should wear a raincoat and carry an umbrella. What is an umbrella? For me, it means shorting. Of course, Mr. Chang would oppose me on shorting, and many value investors oppose shorting as well.

Running a business is like sailing against the current; it is not easy. If you look at the changes in the components of the Dow Jones Index over the years, you will see that they were all leading companies at that time. How many names in today's Dow Jones Index are from 30 years ago? Many have been eliminated. Many companies in the current Dow Jones components will also be eliminated in the future, which may hold short-selling opportunities.

Many so-called great companies. When the market considers them great, they receive great valuations and great prices. Once they become less great, that’s the opportunity to short. Our approach to going long is also different from many investors. Let me tell a story from 25 years ago, when Chinese aviation was still in the penetration stage, and there were more wealthy people in China, leading to more people willing to fly. At that time, the three major airlines were Air China, China Eastern Airlines, and China Southern Airlines. The one with the highest ROE was Air China, so many people bought Air China, but I didn’t; I chose to buy the underperformers. Once the aviation cycle picked up, all three major airlines benefited, but the financially weaker companies benefited even more. A good company’s profit margin increasing from 10% to 20% means profits double, while a weaker company’s margin can go from 1% to 10%, resulting in a tenfold profit growth. The weaker companies have greater elasticity. Initially, we bought China Southern Airlines, only to find that China Eastern Airlines was even worse. Their financial statements were poorer, and their operations were worse, so we quickly bought China Eastern Airlines instead. As speculators, we earn from Delta, which is change. In this change, our company focuses on three aspects: market size, market share, and profit margin. The most elastic is profit margin; changes in market share are very difficult. It takes tremendous effort to increase market share even slightly. Sometimes I define myself as a profit margin speculator.

We never make long-term judgments; instead, we look at changes in a rolling manner. Our fund has also held onto many companies for a long time, but our holdings are all rolling operations. It's like being in a relationship; at the beginning, we shouldn't talk about lifelong commitments. You just met, how much can you understand? Take it step by step, live a little at a time, and in the end, you may grow old together. Don’t over-promise from the start; that’s an irresponsible commitment. This is similar to analyzing businesses. Saying we want to look far into the future is also an irresponsible promise. I believe this is humans overestimating their performance; we are very small in the face of the future. When a hundred people talk about future events, and in the end, one person gets it right, everyone says how successful that person is, but that’s survivor bias. It’s not because they are so remarkable. We need to be grounded in our investments, conducting rolling research on each company. Don’t miss any quarterly reports; each report is an opportunity to validate or falsify your judgment, so cherish this opportunity. I never encourage a "buy and sleep" attitude; it should be "buy and watch." Because companies are changing, the environment is changing, and the entrepreneurs themselves are changing, we must closely monitor these changes. Don’t hold onto the notion of good and bad companies; always maintain an "open heart" and understand impermanence.

As I shared earlier, I am a cyclical investor, and the relationship between supply and demand changes over the cycle. Speculators study these changes; they need to analyze both the changes in supply and demand as well as the changes in market sentiment. Let me share how I grasp market sentiment.

First, you need to look at history to guess the current emotions. If you don't believe that past prices included certain fundamentals and emotions, then it is impossible to analyze fundamentals and emotions to infer the future. The stock prices over the past five years must also reflect the company's fundamentals and emotions at that time. If the price-to-earnings ratio over the past five years has been in the range of 10 to 20 times (I use the price-to-earnings ratio as an indicator of market sentiment), then you can use 10-20 times as a reference now. In a pessimistic scenario (10 times), there might be buying opportunities, and similarly, if it is 20 times, it could be a short-selling opportunity. When the price-to-earnings ratio is at 20 times, the market tends to be more optimistic about the stock, with various claims about how great the company is, saying this time is different, this time the company's stock price will behave differently, the AI era has arrived, and what will happen to this company. However, based on my 35 years of experience, the probability that "this time is different" is extremely low; nothing is really different. From a probabilistic standpoint, this time might be different, but as investors, we should not gamble on this small probability. At this time, you should not think about going long; you should consider things from a short-selling perspective. It's not that the company is bad; the company is good, but the goodness is already reflected in the price. The company's changes may be 20%, but the change in market sentiment far exceeds 20%. For example, as I mentioned earlier, a company's stock price doubled in a month, but will its profits double? The surface remains still, but the heart is moving; the changes in market sentiment exceed your imagination.

Second, do not trust history too much. We try to provide a valuation range, but this range is variable. For example, if history is 10-20 times, you can adjust it to 15-25 times or 7-15 times based on the actual situation. For instance, when interest rates decrease, this range is higher, and when interest rates are high, this range is lower.

In addition to changes in the external environment, there are also changes in management. For example, if Xiaomi's management changes from Lei Jun to someone else, Xiaomi may need to adjust its strategies. This is because everyone's abilities and values are different. In the past, whenever Xiaomi faced difficulties, Lei Jun could turn the tide, but a different CEO may not be able to do the same. Alright, due to time constraints, I will share this much for now, and let's move on to the Q&A, which will be more interesting.

Q&A Session

Zhang Zhao: Hello, you mentioned that "this time is different" is a low probability event, and there is a strict stop-loss discipline. If such a "different" situation really occurs, leading you to stop loss, it also involves the issue of reinvestment. How will you handle it afterwards?

Hu Meng: The most important thing is honesty. Honesty includes many layers. The first is to be honest with investors, and the second is to be honest with oneself. If you clearly made a wrong judgment, the first thing you can do is to cut losses. After cutting losses, reassess and return to the original thought process to see whether to go long or short. Cut losses first, don't think first. When a person is at a loss, it's easy to develop biases, and the quality of thinking is very poor; trust the discipline first. The most important thing in investing is to adhere to discipline. If after cutting losses you find that there has been a fundamental change, like a country that was previously closed suddenly opening up, and such a fundamental change occurs, if you were originally short, at this point, you should turn around and go long. Believe in the facts, and the facts of change, respect the facts, and do not respect your so-called past research.

Zhang Zhao: Hello, you mentioned that you do not recommend doing "Pair Trade". But for example, if we only operate in the Chinese market, where macroeconomic and policy influences are significant, wouldn't Pair Trade simplify our judgment on the macro environment? Why do you not recommend it?

Hu Meng: Thank you for your question. Pair trading is not advocated in our company. However, peers like to engage in pair trading. The example I mentioned earlier, you go long on China Southern Airlines and short on Air China, right? No! The factors contributing to our performance from cyclical company trading can be divided into three: about 20% from the company's own factors, about 30% from market factors, and 50% from changes in industry cycles. If you engage in a pair trade, you are hedging away the main source of profit, which is the contribution from industry cycles, and that is counterproductive. And what is your risk? Let's take an example, you go long on China Southern Airlines for 100 million, and short on Air China for 100 million. So you are taking on a risk of 200 million USD, but the return you get is just a small performance difference between them. This is a counterproductive trade, sacrificing the most important profits from the industry's cycle.

In the three levels of enterprises, industries, and markets, the judgment of the industry is actually the most certain. For example, if the memory cycle is on the rise now, going long on Samsung while shorting Kioxia would be a failed trade.

Investing is a question you pose to yourself, which is different from being in school. It's like when you're in a value investing class, and the teacher gives you a question that you must answer. But when you're in your own career and managing a fund, you don't need to pose questions to yourself that you can't answer. If your IQ is 130, then choose questions that someone with an IQ of 120 can answer. There's no need to challenge yourself with questions requiring an IQ of 150; be kinder to yourself. Judging the differences between companies is difficult, while assessing industry cycles is relatively easy. As a result, if you hedge the relatively easy industry cycles, don't approach it that way.

Zhang Chao: Thank you. I would like to ask further, for example, because China used to be a growing economy, the industry Beta would be relatively large. Later, as we enter a stock economy, with industry changes not being as rapid as before, how should we approach investment in a situation where the industry Beta itself is relatively small or the industry is relatively stable?

Hu Meng: Let me interrupt you here. The biggest taboo in investing is making preconceived notions. When the market believes it is a stock economy, you shouldn't think that way. Don't easily draw top-down conclusions; you should look at each industry specifically. Whether it's investing or speculating, top-down judgments can be deadly. First, top-down analysis is difficult; second, it can bias your entire fund. If your judgment is wrong, the whole fund is doomed. A crucial aspect of investing and speculating is to have self-awareness. Stay within your circle of competence and seek questions you can answer.

Student: What is your estimated accuracy rate? What is the average holding period for individual stocks? And do you have any case studies you can share?

Hu Meng: We have 18 fund managers, and each person's idea accuracy varies. The highest can be 70%, but actually, 55% to 60% is already very good. Accuracy is one aspect; additionally, when you make a correct judgment, you need to gain more profit, and when you fail, you must control the losses. We have a discipline of stop-loss, which controls the losses during judgment errors. According to our data, the average loss of the stocks we judge to be failures is only 12.8%.

Wang Weihua: Thank you for your sharing. The first question is, if people are indeed as insignificant as you say, and if it is impossible to predict the future, why are there so many successful value investors in this world like Buffett, Li Lu, and Mario Gabelli? The second question is, what kind of qualities should a person have to choose speculation, and what kind of qualities would be more suitable for value investing? For people like us who have no religious beliefs, does that mean we can no longer speculate?

Hu Meng: The people I refer to here as small are relatively so; Buffett is relatively "high" among people. Buffett is a great investor, but he is still far from being an angel. In fact, Buffett is an exceptionally excellent speculator, as evidenced by his saying, "I am greedy when others are fearful."

Stubborn people cannot engage in speculation. Whether one is suited for investment or speculation depends first on character; one must be relatively flexible. Second, one must have a strong ability to learn. For investment, it may be enough to understand a few companies or industries, but for speculation, one needs to understand more industries and also grasp market sentiment.

Not everyone has the fate to be able to invest. Can you do value investing? It depends on the nature of your capital, including what you mentioned about Buffett, who later closed his own fund and adopted an insurance company business model for investment. Therefore, which path you take is related to your own situation. It was also mentioned earlier that your future career is likely to be on the path of speculation, and there is no need to get entangled. You can first learn the logic of investing and then become an excellent speculator.

Even if you are a stubborn person, you need to be a little flexible. What I just said about "the insignificance of man" itself is a reminder not to be stubborn.

Wang Weihua: This answer is fantastic. I think it is very helpful for students who have not yet entered society.

Student: I read your book, and it mentions that this medium cycle is the foundation of fund management. I would like to ask two small questions: First, how long of a dimension are you mainly referring to regarding this medium cycle? Second, since you mentioned strict stop-loss, what proportion does the performance of stock prices have in validating the judgment of the medium cycle?

Hu Meng: The long cycle, medium cycle, and short cycle are relative. Our company also refers to them as T1, T2, and T3. We mainly focus on T2, which represents changes over a period of 3 to 18 months. I believe that stock price changes within 3 months are unpredictable, and predicting events beyond 18 months is also quite challenging. Therefore, we primarily pay attention to what might happen in the 3 to 18 month timeframe. From a profit perspective, for instance, starting from today, we focus on profits for 2026 and 2027, while we usually do not model for 2028.

Student: Because you mentioned this strict stop loss. I want to ask, how much does the performance or returns of the stock price after your purchase factor into your validation of your early judgment?

Hu Meng: For cycle judgment in a rolling manner, I look at a rolling period of 3 to 18 months, without trying to predict the cycle length. If this cycle continues to rise, then continue to hold.

Our stop-loss is not based on judging whether this cycle has changed; such judgment is very subjective and should be heeded when in loss. Our stop-loss is based on how much loss we can endure. For example, a 20% stop-loss on an individual stock means a 2.5% stop-loss on the entire fund. Therefore, this stop-loss is related to our capacity to bear losses, not to our judgment. If you have a total of 100 yuan today and you've already lost 70 yuan, regardless of your subjective views on the company's fundamentals, you need to stop-loss. You must consider where your capacity to bear loss is. The duty of stop-loss is to control risk, not to prove our judgment was wrong.

After a stock hits a stop loss, we continue to research: where did we go wrong? Was it a mistake in profit estimation, or was it an emotional error? We might buy back or possibly short sell. The summary is, let profits continue to grow, and if there’s a loss, cut it based on your risk tolerance and then reassess. This is what I emphasized earlier: cut losses first, then think. Human thinking can sometimes be unreliable. Classmate: The first question, how can we seize speculative opportunities like a limit-up? The second question, can we use big data analysis to capture market sentiment for speculation?

Hu Meng: It's simply impossible to chase limit-up boards. You've set yourself a difficult problem, which is what I've said: you have an IQ of 130, yet you insist on solving a problem that requires an IQ of 150. I never pursue this. Firstly, I can't achieve it, and I don't believe you can find any teacher who can answer this question.

Using big data analysis to capture market sentiment is a different matter; it is something that is done quantitatively, and we do not engage in quantitative analysis.

Liu Jun: May I ask Teacher Hu, is the biggest danger not confusing investment with speculation? For example, wanting to make an investment but actually speculating, or wanting to speculate but actually investing? And how should one correctly handle the relationship between the two?

Hu Meng: Speculation and investment are inseparable. Without good investment, speculation is not feasible. Every fund manager in our company must have a deep analysis of the company's business model, management team, products, market, and profit statement. Without this analysis, what basis do you have for speculation? You need to clarify the profit first and understand the future profit; if you don’t understand E, having only PE cannot calculate P. You must first do a good job of investment to be able to speculate well. For example, some of our colleagues who perform well come from private equity funds, as they have a solid investment foundation. When they come to speculate, I can provide them with some supplementary speculation ABCs, and they can quickly get on the right track. If there is no investment foundation, the risks of speculation are very high.

Classmate: In the process of asset bubble formation, the ultimate height that can be reached is unpredictable and may last a long time. How can one continue to profit through short selling during this process?

Hu Meng: The first point is that I will not predict the height. We will take it step by step, but we must be prepared for unfavorable situations like a bubble burst. The principle of shorting is different from going long. When going long, you can take on uncertainty on the left side. When shorting, do not predict the top; you should be on the right side and wait for the first domino to fall before shorting.

For example, if a stock rises from 10 to 100, and you go long at 10, you are taking on uncertainty, but the return is 10 times. However, when shorting, we need to wait for greater certainty. By this time, the stock may have dropped from 100 to 50, and if you short at 50 down to 10, you have an 80% profit. You gained more certainty but only sacrificed 10% of the return. Going long involves taking risks for rewards, but guessing the top to short at the peak does not offer much reward. Understanding this math is important.

Generally speaking, when short selling, the entrepreneur is your opponent. He may want to work hard to save the business, and he will find ways to reduce inventory and lower costs. At this time, do not underestimate the subjective initiative of the entrepreneur. Only when you are sure that he cannot save the situation can you proceed with the short selling.

Student: It was just mentioned that speculation involves cutting losses without taking profits. If there's no profit-taking, does it mean that all sales are just loss-cutting sales, calculated based on losses from a temporary high point?

Hu Meng: We do not calculate it this way.

Student: How do you view the recent short-selling strategy of the large short prototype? It seems like a left-side short.

Hu Meng: I do not agree with his approach to short selling; it has a somewhat sensationalist feel to it. In the long run, this strategy will end badly. This is not our style. In fact, his strategy does not have a large fund size, and the investors are smart.

Teacher Chang: I would like to thank Mr. Hu Meng for his candid, straightforward, and sincere sharing of his experiences and lessons with us students. I personally gained a lot from it. Many of our basic values are very aligned. He raised a question: each of us should take a moment to reflect carefully on whether we are an investor or a speculator. This is a very good question.

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