Beauty Pageant
Weekly Market
Cycle: 20200316-20200322
| Market | Index | This Week (%) | 1 Week Ago (%) | 2 Weeks Ago (%) | 3 Weeks Ago (%) |
|---|---|---|---|---|---|
| SSE Composite | 2745.62 | -4.91 | -4.85 | 5.35 | -5.24 |
| SZSE Component | 10150.13 | -6.29 | -6.49 | 5.48 | -5.58 |
| ChiNext Index | 1915.05 | -5.69 | -7.4 | 5.86 | -6.96 |
| Hang Seng Index | 22805.07 | -5.11 | -8.08 | 0.06 | -4.32 |
| HSCEI | 9118.67 | -3.13 | -9.11 | 0.83 | -5.4 |
| Red Chip Index | 3379.03 | -7.38 | -11.21 | 1.87 | -5.66 |
| Dow Jones | 19173.98 | -17.3 | -10.36 | 1.79 | -12.36 |
| Nasdaq | 6879.52 | -12.64 | -8.17 | 0.1 | -10.54 |
| S&P 500 | 2304.92 | -14.98 | -8.79 | 0.61 | -11.49 |
The Shanghai Composite Index fell by more than 4%; the Shenzhen Component Index fell by more than 6%; the ChiNext Index fell by more than 5%. The Hang Seng Index fell by more than 5%, the HSCEI fell by more than 3%, and the Red Chip Index fell by more than 7%. The Dow Jones fell by more than 17%, the Nasdaq fell by more than 12%, and the S&P 500 fell by more than 14%.
Events
On March 16, the Federal Reserve cut interest rates by 100 basis points to 0-0.25%, and launched a US$700 billion quantitative easing plan. The next day, US stocks fell by more than 10%, triggering the third circuit breaker this month.
On March 18, the Federal Reserve launched the Commercial Paper Funding Facility (CPFF) to purchase corporate commercial paper to provide liquidity to companies. The next day, US stocks fell by more than 6%, triggering the fourth circuit breaker this month.
On March 19, the Federal Reserve launched the Money Market Mutual Fund Liquidity Facility (MMLF) to provide liquidity to money market funds. The next day, US stocks rose slightly by 1%.
On March 20, the People’s Bank of China announced that the one-year Loan Prime Rate (LPR) was 4.05%, and the 5-year LPR was 4.75%, both unchanged from the previous month.
Position Adjustment
On March 19, I bought 2000 shares of H-share ETF (510900) at a price of 0.98. On March 20, I bought 2000 shares of H-share ETF (510900) at a price of 0.97.
| Type | Code | Name | Current Dynamic |
|---|---|---|---|
| Stock | APT | Alpha Pro Tech | Hold |
| Fund | 510900 | H-share ETF | Buy |
| Fund | F210008 | Golden Eagle Strategy Allocation Hybrid | Hold |
| Fund | F519674 | Galaxy Innovation Hybrid | Hold |
| Fund | F005311 | Wanjia Economic New Momentum Hybrid A | Hold |
| Fund | F020003 | Guotai Golden Dragon Industry Selection | Hold |
| Fund | F005911 | Guangfa Double Engine Upgrade Hybrid | Hold |
| Fund | F00404 | E Fund Emerging Growth | Hold |
| Fund | F519929 | Changxin Electronics Quantization Hybrid | Hold |
Thoughts
Keynes is a famous economist, and he is also a very successful investor. He once proposed the famous “beauty pageant” theory in the stock market: stock investment is like participating in a newspaper beauty pageant. There are 100 photos of beautiful women in the newspaper. Participants are asked to choose the 6 most beautiful women. If the beautiful women you choose are the same as the ones with the most votes from all participants, you can win the prize. In order to win the prize, each participant must not choose the most beautiful women in his own opinion, but must guess which women other participants are most likely to choose.
This theory is a vivid portrayal of short-term speculation. Speculators do not care about the true value of the company, but only care about whether someone will buy at a higher price in the future. As long as everyone thinks a certain stock will rise, it will rise, even if the company is bankrupt.
However, the beauty pageant theory has a fatal flaw, which is that it assumes that everyone is rational and can accurately predict the behavior of others. But in reality, people are emotional, and their behavior is affected by many factors, such as fear, greed, hope, and so on. When the market is in panic, everyone sells stocks, no matter how good the company is. When the market is in euphoria, everyone buys stocks, no matter how bad the company is.
Therefore, for long-term investors, the beauty pageant theory is not of much value. We should focus on the true value of the company, not on short-term market fluctuations. As long as we buy good companies at a reasonable price, we will get good returns sooner or later.
Published at: Mar 22, 2020 · Modified at: Dec 4, 2025
