Today, let’s talk about the investment artifact that ordinary people can learn — fixed investment of funds.
In 2005, Mr. Buffett wrote a letter to all active equity fund managers. Within 10 years, no active fund could beat the S & P 500 Index Fund. The bet was $500000.
As soon as the gamble started, the whole wall street was silent, and no one dared to fight. Until 2008, Ted siders, the investment manager of protigher, selected five funds to compete with Buffett’s S S & P 500 Index Fund in the next 10 years.
By 2018, the gamble is over, and Mr. Buffett’s S S & P 500 fund returns are 125.8%, while Ted sidders’s five funds are yielding from 2.8% to 87.7%.
S & P 500 Index Fund wins!
Do you want to know why Mr. Buffett dared to take the gamble? Next, we will uncover the mystery of index funds.
Part one what is an index fund?
1. What is stock fund
Stock funds, literally, are funds that invest in stocks.
At present, there are more than 3600 stocks in A-share market. Most people can’t distinguish the good from the bad, and they don’t have the energy. So the fund manager came out, we gave him the money, he came to help us screen and buy stocks.
So the stock fund is to buy a package of stocks, we buy funds, is to buy the position of this fund stock.
What does that mean? That is, we buy stock fund is equivalent to buying stock.
Comparatively speaking, the risk of stock fund is smaller than that of direct purchase of stocks, because we have bought a lot of stocks. Even if one of them has a very serious problem, it will not be too miserable.
As mentioned earlier, Mr. BA’s bet is that no active fund can beat the S & P 500 Index Fund.
What are active funds and index funds?
Funds are divided into active funds and passive funds, usually we refer to the stock funds are active funds, and passive funds are index funds.
2. Active fund vs passive Fund (Index Fund)
What is active fund?
Active fund is a kind of fund which is selected by the fund manager himself. The performance of the fund depends on the ability of the fund manager.
The passive fund is not selected by the fund manager, so who will choose the stock? The answer is the index.
What is an index?
The index is actually very simple, for example, Baidu has a “Baidu music ranking list”, which will list the most popular music at present.
If I am a company that specializes in producing popular music records, I can specially produce “Baidu top music ranking list” records: select the most popular 10 pieces of music every year and make records.
An index is a list of stocks. To be more complicated, an index is a weighted average, which is used to reflect the average level of the market.
We are also often exposed to the index in our daily life, such as the average score of a class, the average age of a city, etc. This average can reflect the average level of a certain aspect, just as the average score of a class can reflect the average level of class performance, which is the function of the index.
Similarly, in order to reflect the level of the stock market, the stock index was born.
Let’s take the CSI 300 index as an example.
The CSI 300 index selects 300 stocks with the largest scale and the best liquidity from the Shanghai and Shenzhen stock exchanges, which constitute the constituent stocks of the CSI 300 index.
The 300 constituent stocks included in the CSI 300 index will be re selected twice a year to remove the unqualified companies and add other qualified companies.
The stock price of these 300 stocks, according to their respective weight proportion, weighted average, we calculate the CSI 300 index
What is an index fund?
Similarly, taking Hushen 300 as an example, a fund company sets up a certain financial product. They buy the corresponding stocks according to the CSI300 index in proportion to form a fund product, which is the index fund.
3. Advantages of index funds
Why does Mr. Buffett believe in the index foundation over the active fund?
First of all, because of the shortcomings of active Funds – they can’t get rid of the weakness of human nature.
Investment should be bought in a bear market and sold in a bull market. Fund managers understand this, but they say: I can’t do it. Because the customer can’t do it.
Those funders are in the bull market to buy, bear market redemption, fund managers have to sell in the bear market, buy in the bull market. So it’s no surprise that 80% of the funds can’t beat the index.
The second is the advantages of index funds.
1. Destroy human nature.
The index regularly adjusts its constituent stocks according to the rules every year, and the index fund also adjusts its position stocks mechanically. Therefore, it can get rid of the influence of fear and greed, and will not pursue the rise and fall.
The company will close down and disappear, but the index will not. The index will adjust its constituent stocks regularly. By introducing new companies and eliminating the old ones, the real sense of immortality is realized.
The most famous example is the Dow Jones industrial average.
There are 30 constituent stocks in the Dow Jones industrial index. On June 26, 18, Ge, an industrial giant that has persisted for 134 years, was also excluded from the Dow Jones index. As of 2018, all the constituent stocks in the initial stage of the establishment have now been replaced.
The Dow Jones index has experienced many twists and tribulations since its birth. After two world wars, the great depression in 1920s, the great depression in 1987 and various crises.
After the 9981 difficulties, the index is still growing vigorously. But the Dow rose from 100 to more than 26000 today (260 times).
It’s really an iron and steel barracks. If we buy an index, it’s equivalent to buying Yingpan. If we buy specific stocks, we’ll buy a certain soldier. Soldiers may die, but the camp will always be there.
3. Rise forever.
This is the stock market situation in the United States from 1801 to 2001. Over the past 200 years, the growth rate of various categories of assets. The stock rose from $1 to $755163, or 755163 times.
Let’s look at the situation in China. Let’s first look at the Hang Seng Index
The Hang Seng index is an important index in the Hong Kong market. It was born in 1964 with 100 points at first and 30000 points in 2018. The annualized yield is nearly 11%, and it has increased 300 times in 54 years.
Speaking of this, I have to rectify the name of a shares, who said that a shares do not make money? Although it has only been born for more than 20 years, it has experienced ups and downs in the middle, but it has risen from 100 points in early 1991 to about 2800 points now. The annualized yield has reached 13%, and it has increased 28 times in 27 years!
Why does the index rise forever?
Because there are companies behind the index, the index will regularly adjust positions, select companies with strong earning power into the index, and eliminate companies with weak earning power. Therefore, the index must rise for a long time.
As Mr. Buffett said, buying index funds is buying National Games. As long as we believe that the national economy can continue to develop, the index fund will be able to rise for a long time, and we can share the benefits brought by the national economic growth.
Part II fixed investment
We’ve learned about index funds, so let’s talk about the multimillionaire program.
For example: a monthly fixed investment of 2000 yuan, get 15% annualized rate of return, 30 years later, how much will we get? The final revenue is 13 million.
This is the Multi Millionaire plan with fixed investment of fund. To be exact, it is fixed investment of index fund.
Some partners said that I know to choose index fund now, so I will choose an index fund to invest. Some people say: fixed investment amount every month, fixed investment on time, regardless of the market. We call this kind of fixed investment a fool’s type, referred to as “no brain set”.
Who said that index fund fixed investment can definitely make money? What a loss! What a loss! What a loss! If you don’t beat inflation, you’ll lose! So why lose? Because it’s been a crying path. As shown in the figure below
Cry curve, from 1 to 2, to 3, and then to 4!
The best way for index fund to make money is to take a smile curve path.
Smile curve, start with 1, go through 2, and go through 3 to 4. As shown in the figure below, this is the result of a smiling face path
So it’s not always possible to make money at any time!
That’s the question. How can we know if it’s a smile curve or a sadness curve? That is: how do we know if we are at a or B? How do we judge?
According to the index up and down?
Or according to the index point? 3000 in and 6000 out?
Some of these indexes are awesome, far more powerful than others, and some are suck. Therefore, only looking at the ups and downs, only looking at the point is not necessarily reliable.
The correct answer is – valuation
What we need to do is to learn how to evaluate and decide whether to enter the market according to the valuation! If the current valuation is relatively low, that is to say, the price is lower than the intrinsic value of the fund, then we need to buy at this time.
For example, a basket of packaged vegetables, fresh and beautiful, is worth 100 yuan. One day, the market is cold and the vegetables can’t be sold. The price will be reduced to 80 yuan. At this time, the price of 80 yuan is less than the value of 100 yuan. This can buy decisively!
The specific method will be taught in the fund training camp, how to estimate the buying point and selling point of the fund, so as to expand the profit under the condition of low risk.
Of course, in addition to fund valuation, there is also a set of fixed investment fund strategy, and this strategy can obtain higher and more stable income than mindless fixed investment!
According to the data, the long-term return rate of A-share is about 10%. That is to say, in the long run, even if a little bit of strategy is used, it is more likely to obtain an average return of about 10%.
It’s so good, then I’ll make a decision. Why study?
Let’s talk about the three factors of compound interest: principal, time and yield. Our principal varies from person to person, so we can only work on the latter two items.
Let’s look at the impact of yield.
Let’s first assume that you can get 10% of the annual return if you make your own investment. How much money will we have in 30 years? 4 million 520 thousand
What about 15% annualized income? 13 million 840 thousand
The yield difference is 5%, and the final income difference after 30 years is 9.32 million.
Finally, let’s look at the impact of time.
Even with the same rate of return, there is a big difference between early investment and late investment.
Here is the introduction of the fund and fixed investment. Let’s review the key contents of tonight:
- The fund is divided into active fund and passive Fund (Index Fund). The index fund was once set up by Warren Buffet and won great victory;
- The characteristics of index fund are: dehumanizing, immortality, rising forever. Buying index means buying national fortune;
- Fixed investment index fund should choose smile curve;
- When the principal and fixed tender are the same, the yield and the fixed time will be different greatly under the effect of compound interest.