A Letter From Yiqiao Yin

Dear Reader,

I assume everybody reading this page has some kind of interest about the stock market. I am just like you. Most of you would probably be struggling to figure out how to make a sound investment decision. What strategy shall be used? Fundamentals, technicals, or even artificial intelligence?

Before answering this, I want to remind you of a martial artist who is also my personal idol. He is the most integrating person in his field and the most influential person in the movie industry back in the 70’s in Hong Kong. His name is Bruce Lee. His quote, “Be shapeless, like water”, has influenced several generations of lives, including myself, to re-think about the philosophy of hand-to-hand combat and the emotional content against an opponent in a fight. Imagine yourself in a combat with a heavier weight fighter, you are not likely to win because his punches are a lot more powerful, but you will beat him if he makes too many mistakes. The emotional content is to intercept your opponent any way you can by absorbing your opponent’s force and returning the force back to him with double or even triple the power. What is this supposed to do with investment? Consider Mr. Market as this fighter. He is big and heavy, but he does make mistakes. How do we understand him in a way so that we won’t get beaten up? How do we generate a positive alpha while also capture beta with the market volatility? That is the mysterious direction we are heading toward, by using an integrated thinking process with “systematic” steps to face all kinds of situation. Mr. Market is indeed a good fighter, but he is not always rational. With this process, we are learning and trying to understand this irrational market as much as we can. We beat the market because we make fewer mistakes. In time, we will open the door to the next generation of investment.

This thus leads to a summary of the philosophy of this company and our core understanding of making the investment:

 “The real value of investing lies somewhere in creating, integrating, specializing an objective approach subjectively on analysis of irrational security rationally.”

How to interpret this?

The short version, as mentioned above, is to act like water in the stock market. If you throw a knife in the water, it will not stop the current nor will it hurt anything. The water keeps on going. The long version, as summarized above as the proposed philosophy, provides details of an integrated and consolidated approach to investors that is free of time, free of quantitative models and strategic plannings, and a big fat profit virtually indestructible against any price attacks in any market environment.

We are better off than everyone else because we participate at a time when Mr. Market is at his weakest which just so happen to be the moment after he is at his strongest. We understand and take advantage of this seemingly simple concept though it is actually very hard to practice in real life. It is not hard in terms of computation difficulty. Instead, it is hard to overcome our own fear.

Classical security analysis focuses mainly on analyzing intrinsic value and comparing such value with prices offered by the market. Combined with a few other notions such as margin of safety, one shall be able to invest in great and consistent earnings for the long run. This is a great start.

Modern Asset pricing led by factor-based trading models takes all available indicators in the past to create factors that can beat benchmark returns. Research result as such presents us the quantitative and statistical point of view of looking at the stock market, which certainly deserves our attention.

In big data era, we are facing millions of information every day and many numbers shining in front of us on screens. People then move on to study and practice all sorts of machine learning techniques to tackle big data problems, throwing everything else away while assuming they would become obsolete. We are in a time period when all factors interact each other and they somehow work out a magical way to make our market more efficiently than before. It no longer makes sense to pick sides. United we stand. One needs to take into all available and possible way of thinking into consideration before any sound investment decisions can be made. It is no longer a world where one style can beat everyone else’s. Hence, picking styles (although they look pretty on paper) will not get you anywhere. This is the intrinsic value we are promoting.

The practice of this philosophy, unfortunately, requires years of studying, challenging ourselves, making mistakes, finding solutions, and challenging ourselves again. The cycle keeps moving forward as long as one is willing to commit to it. It comes down to how much passion one has for trying to understand the market and how deep one’s heart is at absorbing mistakes instead of how much money you are trying to make. In the end, one will realize styles do not matter. It is the mind and how one resolves emotional barrier that will help turn the tide, make fewer mistakes, and achieve accomplishments.


Yiqiao (Eagle) Yin