Recently, the market style is undergoing a shift. The low valuation, high dividend sectors that performed strongly in the early period have experienced a significant decline, while traditional blue-chip stocks and small and medium-sized stocks that had previously fallen sharply have rebounded significantly. The market style is quietly changing. High dividend sectors, represented by bank stocks, have risen sharply in the past two years, reflecting the lower risk appetite of investors during market downturns. Many investors have achieved significant excess returns by investing in low valuation, high dividend sectors. Over the past two years, I have also told everyone that the main defensive sectors during market downturns are twofold: one is low valuation, high dividend, and the other is gold.

The market style is changing, which we should pay attention to. After the stock prices of the low valuation, high dividend sectors have risen, the dividend yield is decreasing. This is because, in the calculation of the dividend yield, the numerator is the annual dividend, and the denominator is the stock price. As the stock price continues to rise, the dividend yield of the high dividend sector is actually contracting, that is, the attractiveness to investors is decreasing. Many investors, especially institutional investors, buy high dividend sectors with the mentality of buying bonds, in order to obtain a relatively stable dividend. But now the dividend yield of the high dividend sector has declined, for example, some high dividend sectors' dividend rates have dropped from over 5% to around 3%, gradually approaching the dividend yield of the CSI 300, which means the attractiveness of the dividend yield of the high dividend sector has decreased.

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During the recent market downturn, the stock prices of many bank stocks even hit new highs, accumulating a lot of profit-taking positions. The pressure of profit-taking has also led to a decline in the high dividend sector. On the contrary, many traditional blue-chip stocks have fallen out of opportunities after four years of decline. The stock prices of many blue-chip stocks are only one-third, one-fourth, or even lower than the high point. There is no stock that only rises and does not fall, nor is there a stock that only falls and does not rise. So after the high dividend sector has accumulated a lot of excess returns, the market style is quietly changing, which we should pay attention to.

How should we view the so-called dividend sector? If we look at it from the stage of market decline, the low valuation, high dividend sector is undoubtedly the first choice for many funds, with excess returns, and is an ideal allocation target for investors pursuing long-term stable dividends. However, for long-term value investors, it is not the case. Let's recall the dispute between bank stocks and leading liquor enterprises a decade ago. At that time, the valuation of leading liquor enterprises was far higher than that of bank stocks, and the dividend rate was far lower than that of bank stocks. From the perspective of that year, bank stocks did have excess returns, but after ten years, the outcome is clear. The stock prices of many bank stocks have just hit a historical high, which means that the returns in these years have mainly come from dividends. According to a 5% dividend per year, the return over ten years is about 50%. However, many leading liquor enterprises have increased tenfold in the past ten years.

In the long run, the long-term return rate obtained by investing in a company is basically equivalent to the company's long-term annualized return rate, which is roughly equivalent to the company's ROE. Consumer stocks such as brand liquor and brand Chinese medicine generally have an ROE of over 20%, which has reached Buffett's stock selection standard, and the annualized return rate of long-term holdings is also over 20%. This is from an investment cycle of more than ten years. If we look at the stage of decline, there will also be a significant pullback, but the significance of the decline in different sectors in the past four years is different. The decline of good stocks is just a decrease in valuation, and the performance still maintains positive growth, even double-digit growth. However, the decline in some poor performance stocks is a double kill of valuation and performance decline. The fall and fall are different. When the next round of the market comes, these good stocks that have only seen a decrease in valuation will eventually rise again. Because the performance continues to grow, the valuation will also rebound when the next round of the market comes, but some poor performance stocks may never come back because the performance is also declining.

Therefore, we need to distinguish and choose to be a shareholder of a good company and lay out at a good price, which is the essence of value investment. First, we should pay attention to industries and leading companies that benefit from economic transformation in the next 5-10 years; second, we should choose to lay out when the market is low, especially when the valuation is low, in order to obtain long-term excess returns. However, many investors fail in value investment for various reasons, and we need to constantly reflect. It is not that holding a good company for a long time will definitely make money, but there are many conditions, especially the need for a stable mentality.

First, we need to understand what value investment is. Although value investment is a long-term investment strategy, it is not as simple as holding a good stock for a long time. It requires selecting stocks whose market price is lower than their intrinsic value and holding these stocks until the market re-evaluates their value. Therefore, not only should we choose industries with broad development prospects and strong profitability, but also look for companies with a wide moat and a replicable business model within the industry, and buy when the stock price is relatively discounted from the company's intrinsic value, the greater the discount, the greater the safety margin. Second, we need to continuously learn, improve cognition, and expand our circle of ability.

Buffett said that people cannot earn money beyond their cognitive ability. Even if they earn it by luck, they will lose it by their own strength. Therefore, improving professional ability is very important. Value investment requires in-depth research and understanding of the company's financial statements, industry status, management ability, and market competitiveness. Many investors may lack the professional knowledge and experience required for this in-depth analysis, resulting in an inability to accurately assess the real value of the company.

Controlling one's emotions in investment is very important. Mr. Lin Yuan said that in successful investment, professional knowledge may account for 10%, and the remaining 90% is emotion. Market fluctuations are inevitable, and market fluctuations often trigger the nature of investors' greed and fear. Retail investors are easily affected by emotions and make irrational buying and selling decisions, panic selling when the market falls, and greedy chasing when the market rises, which is easy to give up the original intention of value investment, causing unnecessary losses. Especially during market fluctuations, frequent trading is contrary to the concept of long-term holding and waiting for patience in value investment. The reason why the stock god Buffett can achieve long-term investment success is related to his ability to overcome human greed and fear. When the US stock market is rising, Buffett's Berkshire Hathaway sold a large amount of US stocks of up to $90 billion in the second quarter, accumulating more than $270 billion in cash and equivalents. Among them, US Treasury bonds held $230 billion, exceeding the Fed's holding of $190 billion.

The reason why Buffett reduced his holdings of US stocks on the rise in the market is actually to do prevention and overcome human greed. When the US stock market has the next big drop, especially when there is irrational selling, many good companies will fall out of value, and then Buffett may buy against the trend, thus being able to obtain a relatively low holding cost. So the stock god Buffett is not mechanically holding long-term in investment. In fact, he is making big waves based on the big fluctuations in the market, which is actually position management.I've previously shared with everyone that for long-term investments, position management is crucial, especially when practicing China's characteristic value investing in the A-share market, where position management should be emphasized even more. The correct approach to position management should be a pyramid-shaped strategy. This means that when the market is near historical lows, it is appropriate to increase positions moderately and maintain a higher level of investment. As the market rises, particularly when valuation bubbles emerge, one should gradually reduce positions, selling more as the market climbs, until reaching a fully liquidated position. This forms a pyramid-shaped management of investments. However, many people do the opposite: they panic and sell off their holdings at market lows, sometimes even reducing their positions to zero, and then become increasingly optimistic as the market rises, eventually going all-in with leveraged positions at the market peaks. If the market conditions change abruptly, they may find themselves trapped at high levels, losing all previous gains and incurring substantial losses of principal, resulting in an inverted pyramid-shaped position management.

We must remember that adopting a pyramid-shaped position management strategy aligns with the rhythm of the market. Additionally, it's important to reiterate never to use leverage or margin trading, because once leverage is applied, time is no longer your friend but potentially your enemy. We cannot predict how long the market adjustments will last or how deep they will be. However, if we invest with unencumbered funds without leverage, we can patiently wait for the next market cycle. It's believed that when the next market cycle arrives, the leading performers will still be these well-performing companies with excellent track records.