Recently, I have been asked many times whether it is possible to bottom-fish and whether it is time for a rebound.

To be honest, I don't know how to explain and answer accurately.

Using a stark reality to explain to everyone might be clearer.

Once a dominant pharmaceutical stock, Tongce Medical, has fallen from over 300 to more than 36, with a drop of nearly 88%.

On this journey, as it fell from 300, how many people have been trapped, bottom-fishing halfway up the mountain?

When you think the drop is significant, from 300 to 100, it's actually just the beginning.

Those who bought at 300 now have about 13% of their assets left.

Those who bought at 100 now have about 39% of their assets left.

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Both are suffering huge losses, and there is not much difference between them.

The first stock of the pandemic, CanSino Biologics, was once speculated to nearly 800, and recently the stock has broken through 40, with a drop of nearly 95%.These are not companies that are going to be delisted and are considered junk; they are still decent publicly traded companies.

Although they have encountered performance issues, they are not at a dead end.

It's just that a slight decline in performance has led to a 90% discount in their stock prices, which makes it hard for those who are trying to bottom-fish to bear.

The majority of retail investors have the habit of bottom-fishing when the stock price drops by 30-50%.

Whether it was bottom-fishing in Chinese internet companies or these pharmaceutical companies, the result is basically a significant loss.

The reason is quite simple: the anchor point for the price is wrong.

Our standard for judging the bottom should not be the price, but the value.

This value has many aspects, among which there are several important dimensions.

The first one is the margin of safety.

The so-called margin of safety is actually the valuation we talk about.Valuation, the key lies in the "estimate," rather than the "value" itself.

The character "estimate" represents the entire market's range of opinion on the stock price of a listed company.

The term "margin of safety" refers to undervaluation, not some reasonable valuation.

Undervaluation is also easy to understand; it means being at a historical low in valuation, or having PE/PB ratios at historical lows.

Never be fooled by the concept of reasonable valuation, as anything that is considered reasonable is typically at the halfway point.

Reasonable valuations are generally derived from the average of valuations, and averages often represent the halfway point.

True margin of safety only appears when the price has fallen to a low level.

If the situation is bad, it may even fall below the low point, reaching a new low in valuation.

Therefore, when considering the margin of safety, one should boldly make assumptions, especially in a downward trend.

The second point is the divergence of chips (or shares).

(Note: The term "筹码" is a bit ambiguous in this context. It could be interpreted as "chips" in the sense of gambling, or "shares" in the context of stock trading. I've translated it as "chips" here, but if it refers to stock shares, you might want to replace it with "share divergence" or a similar term.)The true bottom is definitely when there is no disagreement.

In simple terms, the decline in volume shrinks to the point where there is hardly any capital outflow.

Therefore, the real bottom is rarely accompanied by an increase in volume.

The evolution of the bottom is a process where buyers go from passively taking over to actively taking over.

In the later stages of the decline, buyers, not knowing when the bottom will come, will passively hang a lower price to buy.

But when the disagreement over the chips becomes less and less, the selling pressure is bound to become smaller and smaller.

At this time, the power of the buyers will increase, and the stock price will slowly rise, and the volume will gradually begin to increase.

All bottoms are actually a process of chip exchange.

When the bears have lost all their chips, and the bulls have finished collecting, the bottom naturally forms.

No bottom can escape such a process.The third point, the trend of performance.

The most critical point is that most bottoms are actually related to the turning point of performance.

If the performance of a listed company is still on the road to decline, where does the bottom come from.

Buying the bottom without looking at performance is basically giving money to the market.

Of course, many people's bottoms are not the real big bottom, but the bottom of the short-term over-sold.

The bottom of the fall is often looking at the sentiment, and when the decline is too large, the sentiment needs to be repaired.

But the real bottom must come with the turning point of performance.

When the performance is no longer on the decline, there will be medium and long-term funds that dare to enter.

This place is not a game, but a very certain entry point, is a great buying point for some long-term funds to lock the warehouse.

Of course, it is very difficult to judge the trend of performance, and ordinary retail investors are difficult to judge the turning point of performance through public information.Or rather, by the time the performance is announced, the real bottom low point has often been missed.

The fourth is capital liquidity.

The so-called capital liquidity mainly refers to trading volume.

If the market capital is more active, it will give a certain premium to many stocks.

The professional term is liquidity premium.

But if the market capital is relatively quiet and the trading volume is small, then the stock price will be discounted.

Because when the capital wants to sell in large quantities, the capital to take over becomes less, and it will inevitably go down.

The real bottom of the stock price must be when liquidity is exhausted.

When you see an increase in volume, especially a particularly large trading volume, it is generally not the real bottom.

Only when the volume decreases to the bottom and then gradually increases, and the capital liquidity slowly improves, is it the bottom time.Of course, this also needs to be combined with the performance trends mentioned above, including the situation of the chips for a comprehensive judgment.

When you do not understand the logic at the bottom and blindly try to bottom-fish, the risk is very, very close to you, and it may be a huge loss.

Someone may ask, after saying so much, is there a standard way to bottom-fish?

No, it definitely does not exist.

Because where the bottom is, the main funds do not know.

The main forces' position-building during the decline is passive and will not take the initiative to attack.

They do not know how many chips the opponent has, nor do they understand how low the opponent will drive the stock price.

Even in the final stage of the bottom, it is the main force that is suppressing the chips until the panic plates disappear completely.

The process of seeking the bottom is very complicated.So, precisely catching the bottom of the market is inherently an impossible task.

The methods of bottom-fishing based on the patterns of the bottom are essentially nonsense.

Moreover, the risk of bottom-fishing itself is very high.

You might think that a stock that was at 100 and fell to 50, if the bottom is at 40, seems to have only dropped by 10%.

Actually, if you bottom-fished at 50 and it fell to 40, it dropped by 20%, and to return to 50, it would need to rise by 25%.

If you bottom-fished at 50 and it fell to 30, to break even, it would have to rise by 66%.

The expected return on investment varies greatly depending on the position of the bottom.

There are plenty of stocks that have doubled from the bottom, but ultimately, the investors who have truly doubled their money are a minority.

This indicates that the preemptive bottom price is very tempting.

But precisely because of this temptation, many people have fallen on the beach one after another, and have been severely beaten by the waves.There is a principle in stock trading: never try to buy at the lowest point or sell at the highest point.

This tells us that bottom-fishing itself is impossible at the lowest point, and it also indirectly reveals the risks associated with left-side trading.

Many times, we might as well wait patiently for the situation to become clear, and wait until the characteristics of the bottom meet all the conditions before entering the market.

Investment is about measuring the risk-reward ratio; do not expose yourself to risks just because you want to bottom-fish.