The Profound Impact of Changing Investors' Underlying Logic on Long-Term Performance

Based on behavioral finance research and empirical data, changes in investors’ underlying logic have a

on long-term investment performance. This is not just theoretical cognition, but a fact supported by a large amount of statistical data.

Academic research shows that the average annual loss of returns caused by psychological biases among investors can reach

. The main behavioral biases include:

• Overconfidence
  : Leading to excessive trading frequency, where transaction costs erode returns
• Loss Aversion
  : Unwillingness to stop losses, turning small losses into big ones
• Herd Effect
  : Chasing ups and selling downs, buying high and selling low
• Recency Bias
  : Overfocusing on short-term performance and ignoring long-term trends

Research data shows that contrarian strategies of buying and holding when relative valuation indicators (P/B, P/E) are at historical lows have a significantly higher win rate than the market average over a 3-5 year cycle [1]. This indicates that

is not simply “reverse operation”, but a rational decision supported by data.

Long-term investors can enjoy:

• Time Value of Compounding
  : 1 million yuan growing at 8% compound interest over 10 years reaches 2.15 million yuan
• Avoiding Timing Losses
  : Statistics show that missing the 10 best trading days reduces 10-year returns by more than 50%
• Reducing Transaction Costs
  : Long-term holding significantly reduces handling fees and stamp duties

:

• Financial Analysis Basics
  : Master three financial statement analyses and understand core indicators like ROE and free cash flow
• Valuation Methodology
  : Learn multiple methods such as DCF and relative valuation for cross-validation
• Industry Research Capability
  : Understand industry life cycles, competitive landscapes, and business models

:

• Establish a
  list of credible information sources
  (financial reports, announcements, authoritative research reports)
• Maintain skepticism towards market rumors and verify with data
• Avoid “narrative bias”—people are more likely to absorb stories than facts and data

:

• Before each investment decision, write down an
  investment reason list
• Regularly review the decision-making process to identify cognitive biases
• Keep an investment journal to record thinking logic

:

Despair Phase → Doubt Phase → Optimism Phase → Belief Phase → Danger Phase → Despair Phase

:

• Emotional Indicator Monitoring
  : Pay attention to financing balance, new account openings, popular fund issuances, etc.
• Valuation Quantiles
  : The position of current valuation in the 10-year historical quantile
• Extreme Moment Checklist
  : Pre-formulate response plans for “black swan” events

:

• Contrarian is not blind resistance to trends but waiting for market overreaction
• Set stop-loss levels and admit possible wrong judgments
• Build positions in batches and reserve space for adding positions and responding

:

• Tactics
  : When to buy/sell, position control, individual stock selection
• Strategy
  : Asset allocation, risk preference, investment term

:

• Economic Cycle
  : Understand the Merrill Lynch Clock and asset performance in different phases
• Market Cycle
  : A-shares have an average bull-bear cycle of 3-4 years
• Industry Cycle
  : Technology growth cycles, traditional cyclical industry cycles

:

• Formulate a
  5-year investment plan
  instead of annual goals
• Establish a
  core asset pool
  and track for long-term opportunities
• Regularly (quarterly) review strategy execution instead of frequent adjustments

• High Retail Investor Proportion
  : Large market sentiment fluctuations and obvious herd effect
• Strong Policy Sensitivity
  : Industrial policies and regulatory changes have huge impacts
• Highest Turnover Rate Globally
  : Strong short-term speculation atmosphere

:

• In-depth research on
  financial reports and announcements
  instead of relying on hearsay
• Establish an
  industry expert network
  to obtain first-hand information
• Track
  northbound capital movements
  as a reference for rational investors

:

• Use the
  T+1 trading system
  ’s cooling-off period
• Pay attention to
  STAR Market and registration system reform
  -driven structural opportunities
• Understand the impact of the
  price limit system
  on liquidity

:

• Accept the reality of
  high volatility
  in A-shares and do not change long-term judgments due to short-term fluctuations
• Establish
  expectation management
  and do not hope for huge profits
• Maintain
  patience
  —opportunities in A-shares often appear in extreme pessimism

Based on the principles you mentioned, here are the keys to translating cognition into action:

:

• Seven Parts Mindset, Three Parts Ability
  : Acknowledge that mindset determines success or failure and establish an emotion management mechanism
• Break Narcissism and Keep Humble
  : Regularly review investment mistakes and establish an “error checklist”
• Hard Work
  : Investment is not a shortcut to get rich quickly and requires continuous effort

:

• Correlation Thinking
  : Understand asset linkage and macro transmission instead of simple attribution
• Statistical Principles
  : Replace deterministic thinking with probabilistic thinking and build investment portfolios
• Dialectical Thinking
  : Understand the difference between good companies and good stock prices, and balance growth and value

:

• Continuous Learning
  : Invest time each year to learn new industries and methods
• Family Support
  : Communicate investment concepts and gain family understanding
• Obtain Family Support
  : Long-term investment requires family financial cooperation

:

1. Establish an investment decision checklist (at least 10 criteria)
2. Write down your own investment principles and boundary conditions
3. Formulate an annual learning plan (financial report analysis, industry research, etc.)

:

1. Monthly review of investment decisions and record psychological states
2. Establish an investment partner group for mutual supervision
3. Focus on in-depth research of 3-5 industries to become a domain expert

:

1. Build your own investment philosophy and knowledge system
2. Cultivate independent research capabilities and information channels
3. Establish long-term investment goals and plans for 5-10 years

Changes in investors’ underlying logic are not incremental optimization but

. It shifts from “predicting the market” to “responding to the market”, from “short-term gaming” to “long-term value”, and from “emotion-driven” to “systematic decision-making”. This transformation requires time and deliberate practice, but once formed, it will become the core competitiveness for continuously obtaining excess returns.

: In investment, . That’s why adhering to independent thinking, contrarian thinking, and a long-term perspective is so scarce and precious.

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[0] Jinling API Data
[1] Yahoo Finance - “Avoid Three Fatal Mistakes to Seize Investment Opportunities in the Second Half of the Year” (https://hk.finance.yahoo.com/news/避免三大致命錯誤迎下半年投資機會-053719259.html)
[2] Yahoo Finance - “【Investment Psychology】Common Psychological Biases You Need to Know for Smart Investing” (https://hk.finance.yahoo.com/news/投資心理學-精明投資你需要認識的常見心理偏誤-050521757.html)
[3] Yahoo Finance - “The Biggest Psychological Problem in Investment: Mismatch Between Cognition and Emotion” (https://hk.finance.yahoo.com/news/投資最大心理問題-認知與情緒錯配-014800570.html)
[4] Investopedia - “Top Investment Strategies: Key Approaches to Maximize Returns” (https://www.investopedia.com/terms/i/investmentstrategy.asp)