Analysis of Value Investing Perspective on Why Most Retail Investors Suffer Huge Losses in Bull Markets

A bull market should be a time for investors to share in the economic and corporate growth dividends, but in reality, most retail investors often fall into the dilemma of 'earning the index but losing money.' Tracing the root cause, from the philosophies of value investing masters like Buffett, Munger, Duan Yongping, and Dan Bin, the losses of retail investors essentially stem from deviating from the core principles of value investing—ignoring the intrinsic value of companies, blindly following market sentiment, and lacking a long-term perspective. Ultimately, they become the 'bag holders' in the frenzy of a bull market.

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1. Deviating from the essence of 'buying stocks is buying businesses,' falling into speculative traps

The core logic of value investing is: buying stocks means buying a part of a business, focusing on the company's long-term profitability and moat, not short-term stock price fluctuations.
However, retail investors in a bull market generally deviate from this principle:
   •   Treating stocks as speculative chips: chasing themes (e.g., AI, new energy) and hyping 'meme stocks,' while ignoring the company's profit model and cash flow. For example, during the 2025 AI hype, some retail investors bought a chip company with a P/E of 150x despite it being unprofitable, simply because 'everyone is buying AI.'
   •   Being swayed by market sentiment: Buffett warned that 'Mr. Market is a servant, not a master,' but retail investors often mistake Mr. Market's euphoria for a 'buy signal,' falsely equating rising stock prices with growing company value.

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2. Lacking a 'margin of safety' mindset, buying overvalued assets at peaks

The 'margin of safety' is the bottom line of value investing—only buying when the price is significantly below intrinsic value can mitigate risks. But in bull markets, retail investors often ignore this principle:
   •   Blindly chasing highs: In the late stages of a bull market, stock prices are often overvalued by 2-3 times their intrinsic value. At the Shanghai Composite's 6124 peak in 2007, some blue-chip stocks had P/E ratios exceeding 100x, yet retail investors still rushed to buy.
   •   A classic case: At the peak of the 2021 liquor bubble, Kweichow Moutai's P/E exceeded 60x, and retail investors went all-in, fantasizing that 'liquor is forever the king.' The sector later corrected by over 50%, resulting in massive losses. Duan Yongping reminded: 'Even a good company must be bought at a good price.' But retail investors rushed in long after the 'good price' had vanished.

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3. Abandoning long-termism, obsessing over short-term trading

Value investing requires long-term holding to amplify the effects of compounding from business growth. As Buffett said, 'If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.'
Yet, retail investors in bull markets are often short-sighted:
   •   Frequent trading: Lured by short-term volatility, they chase today's hot sector and switch to tomorrow's trend, leading to 'buying high and selling low.'
   •   Missing compounding: For example, a retail investor held consumer stocks for just one month during a bull market, sold early fearing a correction, and missed a subsequent 30% gain. They then chased tech stocks, only to buy at the peak.
   •   A contrasting case: Buffett held Coca-Cola for 34 years, earning over 200x returns. Meanwhile, retail investors' frequent trading not only missed compounding but also eroded profits with commissions and taxes, leaving them 'busy for nothing.'

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4. Breaking the 'circle of competence,' blindly following trends

Munger advised: 'Knowing the edge of your own ignorance is wisdom.' Value investing demands investing only in businesses you understand.
But bull-market retail investors often overstep their competence:
   •   Buying industries they don't understand: Purchasing semiconductors or biotech stocks with zero knowledge, simply because 'others say it's good,' only to become the 'bag holders.'
   •   Blindly trusting 'experts' and influencers: Following 'recommendations' while abandoning independent judgment. Munger said, 'If I know where I'm going to die, I'll never go there.' Yet retail investors pour money into incomprehensible, high-risk ventures.

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5. Ignoring risk control, devoured by leverage and greed

Value investing isn't about ignoring risk but hedging it through 'margin of safety, diversification, and long-term holding.' But bull-market retail investors often do the opposite:
   •   No profit-taking or stop-losses: Greedy at 50% gains, refusing to sell until profits vanish; hopeful at 30% losses, deluding themselves into 'it'll bounce back,' only to be trapped.
   •   Leverage accelerates ruin: In the 2015 bull market, many retail investors used margin trading or even off-exchange leverage at 5x. Gains magnified on the way up, but a minor correction forced liquidations, with losses exceeding 80%.

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Conclusion

Losses in bull markets stem from retail investors forgetting the essence of value investing:
   •   They aren't investing in businesses but speculating on stock prices.
   •   They aren't pursuing long-term compounding but chasing short-term windfalls.
   •   They aren't controlling risk but amplifying it.

As Buffett said, 'The root of not making money in a bull market is betting on others' stupidity while overestimating your own cleverness.'

Only by returning to the core principles of value investing—focusing on intrinsic value, adhering to long-termism, maintaining a margin of safety, and staying within one's circle of competence—can investors truly share in the growth of businesses, rather than becoming 'sacrifices' in the bull market frenzy.