This article is a compilation of Trader's Talk.
Stocks favored by the &#34;Stock God&#34; Warren Buffett are often highly sought after by the market. Former President Trump's tweets on Twitter have also caused significant fluctuations in the stock market. When Tesla founder Elon Musk reveals the company's technological direction, it creates waves in the industry. The actions of these heavyweight figures in the political and economic world naturally have a profound impact on the global economy.
However, in Japan, there is a civilian-level master trader codenamed &#34;CIS&#34; who has never appeared or publicly revealed his identity. He has only mentioned that he was an ordinary worker before making a fortune in the stock market. In the year 2000, he started investing in stocks with 3 million yen, and his net worth has now accumulated to nearly 30 billion yen (approximately 1.5 billion yuan).
This mysterious &#34;Stock God&#34; holds a pivotal position. With just one tweet on Twitter, he caused a sharp drop of 8.8% in the stock price of the well-known Japanese airbag manufacturer TAKATA. He is hailed as the &#34;man who single-handedly shook the Nikkei index&#34; by the Japanese stock market. He has publicly shared several trading rules, which are worth learning from for retail investors.
CIS's investment journey began in his fourth year of university (2000) when he started investing in stocks with 3 million yen. He revealed that before that, he was a gambler in pachinko parlors and made his first bucket of gold through various gambling and conservative investment methods. He then decided to enter the stock market to make profits through investments.
At the beginning of his investment journey, CIS did not make much money. Instead, due to his mindset and frequent failures, he lost more than half of his capital. At the lowest point, he only had 1.04 million yen left. This was because he constantly tried to analyze the value of companies on his own and targeted undervalued stocks, but often misjudged the situation. He realized that as a retail investor, the information he could obtain with his limited resources was ultimately limited. Therefore, he decided to change his strategy from &#34;value investing&#34; to a complete short-term trading strategy. From then on, he made a leap forward and achieved remarkable success in the investment battlefield.
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The Path to Becoming the &#34;Japanese Civilian Stock God&#34;
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One of his famous achievements must be mentioned, which is the &#34;J-Com incident&#34; in 2005. At that time, &#34;J-Com&#34; was the strongest rising star in the communication industry and hoped to expand its business by entering the stock market. Therefore, they entrusted &#34;Mizuho Securities&#34; to handle the initial public offering. Unexpectedly, on the day of the listing of &#34;J-Com&#34; on December 8, 2005, the trader mistakenly entered the stock price of 610,000 yen per share as 1 yen per share. This incident caused a series of effects, including a sharp drop in the stock price of &#34;J-Com&#34; and a cumulative loss of 40 billion yen. It also severely shook the foundation of the Nikkei index and became one of the most famous &#34;black swan&#34; incidents in the Japanese stock market.
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CIS seized this opportunity and made a large-scale purchase. At that time, CIS single-handedly accounted for nearly 25% of the trading volume, earning 600 million yen from this incident.
Another famous event is undoubtedly the &#34;TAKATA incident&#34;. At that time, CIS, who already had market influence, tweeted, &#34;I have already shorted Takata's stock.&#34;
Who would have thought that a casual remark on a social media platform would cause TAKATA's stock price to plummet by 8.8% on the same day, leaving traders and financial experts amazed. Later, TAKATA announced bankruptcy due to poor management, further solidifying CIS's reputation as a man with an extremely accurate investment vision. He became widely known as the &#34;man who controls the Nikkei index&#34;.
Following the trend yields the highest success rate. As an investor, when someone asks me for advice, especially those who are new to investing, I usually respond with this: &#34;Stocks that are continuously rising will continue to rise, and stocks that are continuously falling will continue to fall.&#34;
When the stock price is in an upward trend, it is believed that it will continue to rise, so the decision to buy is called &#34;following the trend&#34;; if it is predicted that a stock that is falling will rebound and rise, it is called &#34;contrarian investing&#34;. Since both situations can occur, there are people who operate in both ways, but I mainly focus on &#34;following the trend&#34;.
This is because most people and capital buy when the stock price is rising and sell when it is falling. Since most people operate this way, there must be a reason behind it.
I can't say with 100% certainty what the reasons are. Perhaps some people buy based on clear reasons, while others simply follow their lead. If I were to analyze the situation afterwards, there would be as many reasons as there are people, and it would be impossible to explain each one.
However, if it is a fact that buying will cause the stock price to rise and selling will cause it to fall, then following the market trend yields the highest success rate.
At that time, I didn't understand this principle, so after about two and a half years of opening an account, my initial 3 million yuan investment dwindled to only 1.04 million yuan. Because I also invested a considerable amount of savings and salary, I probably lost 10 million yuan. This was because I didn't face the reality and blindly believed in my own judgment, which I will explain in detail later.
Buy stocks that are rising, and avoid buying stocks that are falling. Once the stocks you bought start to fall, sell them. Don't go against the market trend when buying stocks, and be the first to notice any changes in the trend. The reason I have been able to accumulate wealth until now is because I adhere to these 5 principles.
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CIS's 5 principles for successful stock trading
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CIS, the stock market guru, has never publicly revealed his appearance or trading methods, and he rarely accepts media interviews. He gained insights from games that rely on probability and understanding human psychology, such as playing mahjong and poker. These insights include his way of thinking and taking action when facing stock market trends, as well as his methods of surprising and winning. He also revealed 5 principles that allow him to consistently profit in the stock market:
1. Don't blindly indulge in games of probability
CIS mentioned that if you flip a coin 10 times and get heads every time, the chance of getting tails next time is not necessarily higher. Therefore, the idea that &#34;stocks that have been rising rapidly will soon fall&#34; is just wishful thinking, and vice versa.
With this in mind, trying to predict the highest point as a basis for investment techniques will likely result in a higher chance of failure. Therefore, bottom fishing is often risky because it requires a large amount of money and waiting.
2. Always follow the trend
CIS reminds us that blindly &#34;selling high and buying low&#34; is the worst strategy, because as individual investors, the amount of information we can obtain is always limited compared to institutional investors and financial professionals. Therefore, relying solely on our own experience often leads to mistakes.
The stock market is full of variables, and it is difficult for individual investors to predict the tactics of market manipulators. Therefore, when entering the market, it is important to follow the market trend, but of course, we should avoid buying stocks that have been rising for too long.
3. Focus on profitability, not winning rate
In addition to spot trading, CIS also engages in various derivative financial products, and constantly adjusts the investment portfolio, follows the trend, and timely cuts losses. Therefore, CIS is not pursuing a high winning rate, but rather the overall growth of capital.
In fact, the profit rate of CIS stocks is only 30%. CIS mentioned that the most important thing is how much profit you ultimately make, not how many stocks you make money from.
4. Don't hesitate
Do not buy stocks when they are slightly down during an upward trend. CIS points out that even if a stock keeps rising, as long as someone sells and takes profits, the stock price may temporarily decline. It is not wise to enter the market at this time.
Usually, when investors discover a stock that keeps rising, they easily have the thought of &#34;Have I missed the entry point?&#34; Many people hope that the stock price will temporarily pull back so that they can enter the market. But this violates the basic principle of &#34;buying rising stocks and selling falling stocks&#34;.
In simple terms, if you believe that a stock is valuable, when it starts to rise, you should buy it immediately, because you can hardly wait for the moment of pullback. In the end, you will only watch the stock price rise to the price it should be, and miss the opportunity to enter the market.
5. Overcome the fear of losing
The fear of losing will only make you lose more. It is not shameful to lose in investment. But the key is to recognize that you made a mistake and be willing to exit, instead of waiting for the price to rise.
In addition, CIS proposes three points to pay attention to in trading:
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Simplify things as much as possible, extracting the key points will become a not-so-simple task.
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Pay close attention to the change in direction, do not go against the market when buying stocks.
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Calmly evaluate the market and yourself, do not blindly follow the trend.
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True randomness is even more cruel than you think
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In probability and statistical theorems, there is the so-called &#34;law of large numbers&#34;. It means that &#34;as the number of trials increases, the arithmetic mean will gradually approach the expected value&#34;.
Take flipping a coin as an example. The probability of getting heads and tails is both one-half, but if the number of flips is not large enough, it is not surprising that heads or tails keep appearing. Only by continuously flipping the coin and observing the number of heads and tails, will the average gradually stabilize. Since a coin only has two sides, it is not easy to see the average value, so let's consider using a dice instead.
When rolling a dice, numbers from one to six may appear. If you only roll it a few dozen times, it is possible that a specific number keeps appearing, and some numbers may not appear for a long time, making people suspect if &#34;God is biased?&#34; But this phenomenon is not rare.
Conceptually, randomness gives the impression of being evenly distributed, but from a microscopic perspective, it is actually easy to favor one side. Real-world randomness is very cruel. No one will obediently choose the true randomness, and the expected results will not occur as they should.
This phenomenon often occurs in the mahjong games I love to play.
Just like when you can hear the sound of many tiles at the same time, and there are still many tiles left in the tile stack, but the opponent waiting for the one and only tile (mahjong term) ends up winning by self-draw, this situation of being betrayed by probability happens more often than not. However, most people only pay attention to probabilities and averages.
For example, if you flip a coin ten times and get heads ten times, the probability of getting heads or tails next is fifty-fifty. But most people tend to lean towards the idea that &#34;it's about time for tails to come up next.&#34;
<img src="https://imageproxy.pbkrs.com/https://r.hstong.com/public/cms/images/2022/07/29/759886114741813248.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://r.hstong.com/public/cms/images/2022/07/29/759886114741813248.png"/> Source: Internet
In other words, because people expect the expected value to appear, they always think that the results will be evenly distributed, which is a natural feeling and instinct. So even in games based entirely on probability, one-sided results can still occur.
Moreover, stocks are not a game of probability to begin with, so it's best to be mentally prepared for the fact that &#34;it's natural not to achieve an average value.&#34; Stocks that continue to rise will continue to rise, and stocks that continue to fall will continue to fall.
People are easily trapped in the mindset of &#34;although it is currently rising, it will eventually reverse.&#34; The reason for thinking this way is simply because they are limited by the impression that &#34;it will eventually reach a balance.&#34; They think that stock prices will eventually reverse.
What can be certain is only the fact that it is currently rising, and no one knows how high it will rise. Basically, do not pre-set your position, and be brave to enter when it is rising. When a stock that has been rising continues to fall slightly, no one knows if it is just a temporary decline or a reversal to the downside. Just the act of someone taking profits will cause the stock price to fall slightly.
For example, I usually don't pay attention to minor fluctuations, but sell when it falls to a certain extent. In stock market terms, a temporary decline in a stock that has been rising is called a &#34;pullback,&#34; and I mostly sell during the second pullback.
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Never buy during a &#34;pullback&#34;
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Similarly, never buy during a &#34;pullback.&#34; Let me explain to those who don't understand stocks. Buying during a pullback refers to buying when a rising stock falls slightly. Even if it is a continuously rising stock, as long as someone takes profits, it will temporarily pull back, and the act of buying during this opportunity is called &#34;buying during a pullback.&#34;
When buying a stock that has already risen a lot, it is easy to have doubts like &#34;Have I missed the entry point?&#34; If you buy at a high point, you will be restless once it starts to fall. Based on the psychology of not wanting to buy at a high price, it is easy to lock in buying during a pullback.
In order to be cautious, even for stocks that seem to have unlimited potential, you may feel hesitant to buy at a slightly cheaper price. Buying during a pullback is buying during a decline, so it is a &#34;contrarian move.&#34; In other words, it is a buying method that should never be used.
This violates the basic rule of buying rising stocks and selling falling stocks. There is a saying that &#34;the more you wait for a pullback, the less likely the stock price will turn back.&#34;
If a stock is continuously rising, you may not even have the chance to buy it on a pullback, even if you wait for half a day. This saying also indicates that buying on a pullback is not the correct approach.
The idea of &#34;buying on a slight dip&#34; or &#34;buying on a cheap opportunity&#34; is fundamentally flawed.
<img src="https://pub.pbkrs.com/uploads/2024/e3e1f53a3a2d25ef87bdcccadce19afa?x-oss-process=style/lg" alt="" original-src="https://pub.pbkrs.com/uploads/2024/e3e1f53a3a2d25ef87bdcccadce19afa"/> Source: Internet
If you believe that a rising stock will continue to rise, you should buy it immediately. The thought of &#34;Have I missed the entry point after the rise?&#34; stems from the belief that the stock price will eventually reach a balance.
No one knows how high it will rise. Don't think &#34;Is it too late?&#34; but rather think &#34;If it's still rising, it means it will continue to rise,&#34; and boldly buy it. Sell when it starts to fall, and then you will know if it's &#34;too late&#34; or just needless worry.
No one knows when it will reverse. Predicting the timing or price of a reversal is just wishful speculation. Only the market knows about market trends.
He advises individual investors:
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Stocks that are continuously rising will continue to rise, and stocks that are continuously falling will continue to fall. &#34;Trade with the trend, buy stocks that are rising, and don't buy stocks that are falling. Once the bought stocks start to fall, sell them.&#34;
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Never buy on a &#34;pullback.&#34; &#34;Buying on a pullback means buying when it's falling, so it's a contrarian move. Chasing the pullback of a strong stock is a stop-loss operation.&#34;
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&#34;Averaging down&#34; is the worst technique. &#34;Never average down, because averaging down can lead to bankruptcy. The underlying meaning is that when you enter the market to buy, losses should be stopped and exited, not averaged down, which would increase the investment and take on greater risks.&#34;
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Focusing only on &#34;taking profits&#34; will cause you to miss out on big market trends. &#34;The key is not the win rate, but the overall profit and loss - focus on making big profits and small losses, using the big profits to make the overall performance positive.&#34;
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When buying stocks, don't go against the direction of the market, and be the first to notice any changes in direction. The reason he has accumulated his wealth is because he adheres to this fundamental principle. The situation in the market changes rapidly every day, and sometimes a small mistake can lead to a big loss. That's what makes the stock market interesting.

BRK.B

BRK.A

A heavyweight figure in short-term trading.

Character | From 3 million to 30 billion! The legendary Japanese retail investor