Navigating Irrational Markets for Wealth Growth

The Law of the Jungle from Wolves Eating Sheep to Protecting Sheep

1. Most of the capital in the market is irrational, and the probability of losing money irrationally is very high. So how do the masses boost consumption through the stock market?

Good question. If the kindergarten teacher goes home and the principal leaves, leaving only children under the age of 5 in the kindergarten, and asks the children to manage themselves, will the kindergarten be good? Will there be problems? There will definitely be problems, right?

Since 1990, everyone has entered the stock market. After entering the stock market, the masses have always become targets of predation due to their inherent irrationality, and no entity has ever protected the masses.

Before 2000, it was the farmers harvesting the masses; after 2000, it was the public funds banding together; a single fund became dominant and harvested the masses. The policy only needed financing and did not care whether the transactions themselves could make money for the masses, whether the money earned could create consumption, because real estate was booming, so all retail investors were unprotected, and each retail investor was irrational. Speculators and institutional investors used the retail investors and then harvested everyone, forming a mechanism. The Chinese stock market is a jungle, a barbaric jungle, as cruel as wolves eating sheep. But now it is necessary to create consumption, let everyone earn money and consume, so that the Chinese economy can be good.

However, the masses are irrational. If the masses are still harvested by certain entities, this goal cannot be achieved.

This new round of bull market must be managed by the government, must be strongly regulated, the government initiates, the government regulates, the government protects, the government escorts, and the masses benefit.

Sheep have consumption power, which is the strongest need and interest in society, so it is necessary to let the sheep earn money, and then the sheep can consume. The sheep themselves are irrational, and without protection, they cannot earn money, and a protector must appear.

Who is the protector?

It must be policy and government, which is an abstract viewpoint.How Policies Protect Investors

So, how do policies protect irrational investors?

Firstly, by using non-refundable funds.

On September 26, 2024, the Central Political Bureau issued a document emphasizing "boosting the stock market, but requiring insurance, social security, and pension funds to enter the market, then steadily promoting the reform of public funds to protect small and medium investors."

This statement actually implies the need for public fund reform. Why is reform necessary? Because it does not protect investors. Let's look up the Political Bureau document dated September 24 and see who is encouraged.

Insurance companies, funds, and social security companies are encouraged. The original phrase calls for unblocking bottlenecks and quickly entering the market. The stock market needs them.

So the question arises, why does the Central Political Bureau want to invest the money of insurance companies?

Insurance companies have 30 trillion investable funds, about 30% of which can be used for equity investments, amounting to 10 trillion. If insurance companies enter, public funds will no longer be the dominant force in China's stock market.

Secondly, encourage insurance.

Steady progress in the reform of public funds, and timely introduction of investor protection rights - isn't this about protecting the sheep? The Political Bureau realized that people, as sheep, are about to be eaten up, and at this time, protecting the sheep is protecting China's interests.2. At the time of establishing public mutual funds, the intention was to promote long-term investment and value investment, and then to create stable returns for investors. However, the outcome seems to be contrary to expectations.

Yes, this time the focus is specifically on the implementation of reforms for public mutual funds, a policy that aims to address the issue that the masses are always irrational. If left to freely compete in this market, they will inevitably be harvested, like sheep on the grassland being eaten by wolves. They must be protected by hunters and sheepdogs.

Characteristics of Insurance Companies Entering the Market

Insurance companies have recently entered the market with hundreds of billions of dollars, more than 40% of which has been invested in banks, and the rest in undervalued, high-dividend stocks. Why don't insurance companies invest in bubble stocks?

Instead, they invest long-term in undervalued, high-dividend stocks because the money they invest is from policyholders. The money insurance companies collect from policyholders is different from the money mutual fund companies collect from retail investors. Insurance companies must ultimately repay the principal and interest, whereas mutual fund companies, once you hand over your money to them, if you lose it all, that's it, you have no right to get it back.

Under these circumstances, insurance companies dare not risk losing the money, so they will honestly invest in undervalued, high-dividend stocks. This is why insurance companies are innate value investors. When insurance companies dominate the stock market, market volatility decreases, and undervalued stocks become favored. This is why, after the collapse of the Nifty Fifty in the U.S. market in 1972, insurance companies rose to prominence. When insurance companies rise and become a dominant force in the market, the market's stability and rational value investment will relatively dominate more.

Therefore, the Central Political Bureau's strategy is to quickly promote insurance companies to enter the market. The amount of money insurance companies use for investment is very large, and they invest in undervalued stocks, which stabilizes the market. Once the market is stable, its volatility decreases. With less volatility, retail investors, these irrational individuals, have fewer opportunities to lose money.

Why does China's stock market always have to rise from 1000 points to 6000 points? It's all to clean up retail investors. If you rise from 1000 points to 6000 points over 30 years, retail investors almost have no chance to lose money. This is the case with China's real estate, which rises by about 10% each year, and after 20 years, it has increased by n times, leading to no opportunity for all participants to lose money. If real estate companies increased by 6 times this year and then had to increase by 50% next year, the common people would have lost a lot of money long ago. Therefore, it is very important to have a long bull market, a slow bull market, and a market with minor fluctuations.