Hello everyone, I am Xiong Zihao, in this issue, we will talk about how to invest to reduce risks, if you like our content, you can follow me.
There is a saying in the investment market: called high risk to have high returns, low risk and low returns, this sentence is not entirely true, some asset risks seem to be low, but the actual risk is hidden, such as P2P, some non-standard bank wealth management products, the risk is hidden, once the default or the project problems will be lost, let's take a look at what methods can reduce the risk.
Let's first understand compound interest, if the annualized return is 10%, the total return in 20 years is 57 times, 20% annualized return, 37 times in 20 years, 30% annualized return, 189 times in 20 years. You can see that compound interest is very powerful. But no matter how much money you have made in front of you, as long as the last loss is too large, then you will return to the pre-liberation period overnight, so low-risk investment is the last way out.
In the investment market, it is not too difficult to reach at least a 10% per annum target. Warren Buffett's annualized return at 20% is known as the god of stocks, Buffett has invested a total of 55 years from 1965 to 2020, only in 2001 and 2008, the return is negative, and the other years are all positive returns, precisely because there are no big losses, so the annualized return is so high.
Why is control important, let's take a look at a game first, for example, we play a game of tossing a coin, if it's heads, you earn 2 times, if it's tails you lose everything. It's clear that this is a lucrative gamble, and you've been pushing heads, under the law of large numbers. When there are enough times, the probability of heads and tails is 50%, then you must make more money than you lose. But if you go all-in on each one, there's still a 50 percent chance of going back, so you'll end up losing everything.
So how to play this game? Obviously, if you bet 100%, no matter how many times you win in the first place, you will lose money if you make one mistake.
So what about our 80% bet? If your initial capital is 10 yuan, we mainly look at whether you can return to the capital after the continuous **, if you have three consecutive negatives at the beginning, 10 yuan is only 8 cents left in the end, you need to return to the capital 5 times in a row, and the probability of 5 consecutive positives is 3%. You can see that the outcome is similar to the 100% bet, but the loss is a little slower.
What about a 50% bet per hand? Take 10 yuan as an example, if there are three consecutive tails at the beginning, 10 yuan will be left at the end25 yuan, but only three consecutive positives are needed to return to the capital, and the probability of three consecutive positives is 125%, it can be seen that the 50% bet is a tipping point.
What if you lower your bet to 25%? If there are 3 consecutive tails, then 10 yuan is left with 42 yuan, only need 2 positive times to basically return to the cost, the probability of 2 consecutive positive is 25%. If you keep playing like this, there is a high probability that you will make money.
You can see that even if a very good investment opportunity is placed in front of you, if it is not right, you will face huge risks, and low does not mean conservative. Reasonable methods and control can avoid risks, and even turn some high-risk varieties into low-risk varieties.
This is also the optimal betting ratio obtained by using the Kelly formula, which is "(Probability of Winning Odds - Probability of Losing) Odds" in the above example The odds are 2, the probability of winning or losing is half, and the optimal betting ratio is 25% (0.).5×2-0.5）÷2
The Kelly formula was invented by John Larry Kelly. He was a physicist who worked at Bell Laboratories in the United States, and the formula was originally published in 1956 in the Bell System Technical Journal to calculate the flow rate of electron bits. Later, this formula was used in gambling and became widely known for its application in gambling strategies.
Cash itself is an asset, when there is no other investment varieties to invest, you can buy currency, most people always want to run out of cash in their hands, in fact, with cash you have the opportunity to pick up cheap, and you can also reduce volatility to maintain a good attitude, when the market is large, when everywhere, you can carry out.
Nowadays, many currencies are not bad, and they can buy and sell all kinds of ** at any time. My own cash is basically all in the currency**, especially in the interest rate hike cycle, and the bonds*** will have more cash.
We all know that leverage is a double-edged sword, if you use it well, you will be invincible in the world, and if you don't use it well, you will hurt yourself, if you buy a house around 2000, the rent ratio in many areas is 6% at that time, and the rent can support the mortgage.
If you had 1 million at the time, and you only bought one house with all the money, it may be seven or eight million assets now, if you take out a loan to buy a house, buy three houses with 1 million, pay a down payment of 30% for each set, and then take out a rental loan, now you have at least 20 million assets.
If you also add too much leverage, the risk is much greater than the house, your market value of 1 million, if you raise 1 million, 50% of your principal will be gone, if there is no capital replenishment to the liquidation line, it will really be liquidated.
Some investors will say that I borrow money from the outside to invest, if you borrow money from the bank, there will also be a time limit, **often do not rise for a few years, but the money you borrow has time, so **investment must be invested with spare money that has not been used for more than 3 years.
Investing is like playing a game, junior players should slowly level up in an environment that suits you, and you can fight whatever level you want, and you must not cross the line.
For example, currency ** belongs to the primary stage, when novices don't understand anything, first play this to understand, when the currency ** is familiar with the play, the next step is a variety of bonds, bonds** and a variety of arbitrage strategies, do well can also have 5% to 10% returns.
Then there are convertible bonds, ** and other annualized returns can reach 10% to 20%, and finally there is the difficult area of the game, financial derivatives, leveraged trading, can reach 30% yield, although the monster will explode good equipment here, but it is easy to be killed by the monster. Many novices have just come in and crossed the line to fight the most difficult monsters, and even the rules of the game are not clear, do you say you can play a good game?
Some investors obviously don't have the ability to invest, but they guess the ups and downs every day according to the two roots, and ask experts everywhere for 5 inquiries, and in the end they can only become leeks in the eyes of others.
In short, investors often make mistakes, that is, they are too heavy, or even full of positions, and they are too concerned about their own costs, which affects their investment decisions.
In fact, no one knows your costs, you should forget about your own costs, and wait until they are overvalued or the fundamentals have deteriorated before considering selling.
Some people always make a little money and run, make a little when the market rises, and when the market falls, they are unwilling to cut their meat and leave. As a result, he endured the pain of being trapped for several years, and ** just rose to his cost zone, and he was about to get rid of it, but it fell again.
After tossing back and forth a few times, the stock price finally rose to the cost, and once the cost was reached, he sold it out directly, but he didn't expect it to rise again this time. Therefore, this kind of bull market small profits, bear market big losses, although there is no loss of much money, but the time cost is huge, investment should be a big profit when the bull market, bear market small losses, in order to make lasting money.
That's all for this issue, if it helps you, welcome everyone to pay attention to and like it.