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Dispersion is the only free lunch

2017-06-29

In China, our customers are mainly 40 years old. We have also seen a number of wealth management reports. The average age of the average assets over 1 billion yuan in the Chinese wealth population is from 40 to 50. If the average asset is around 100 million yuan, the average age is about 38 years old; then down to 10 million yuan, the average age can be only 30 years old. This determines the Chinese customer market is wealth market.


The risk of a coin toss


I have a balance sheet to account for all the financial products I invested. I will record in detail the purchase time, net value of each product, the performance in recent years, and what position it plays in my asset allocation strategy. Probably few people will manage wealth in my way, but financing is actually what everyone is doing. You may not buy funds or stocks, but you may have used the balance treasure, even if you only put money in the bank, it is also a way of managing money.


Many people have been frying stocks in the past few years. We made a statistics, from the stock market to 2016, all the years together, the stock annual growth of wealth is 13%. That is to say, if you invest in the first day of the stock market until now, you are neither buying or selling nor withdrawing from the stock market, just tracking the earnings of the stock market, then the profit is 13%. Why do you feel that making money in stock market is so easy to reflect as this number? The core reason is that China's stock market volatility is too large. We have seen that the volatility of China's stock market is 30%. What does the 13% earnings mean for the 30% Volatility? In short, the probability that you can get profits in it is only 60%, and the probability that you lose in the stock market is 40%. This probability is actually only a little better than the probability of throwing a coin.


If you are lucky enough to invest in coins, it doesn't mean that you can enjoy high returns. 13%, this figure is basically the same as the number of nominal GDP growth in China in the past 20 years. In fact, in all other major developed countries and emerging economies, long-term stock returns are closely related to economic growth.  So if we think that the whole Chinese economy is facing a relatively low growth period, the implicit conclusion is that the earnings of the whole Chinese stock market will not be as good as that of the past 20 years.


Meanwhile, in recent years, China's bond market volatility has increased by 50%, while the fluctuation rate of RMB against the US dollar has increased by 100%. In the past year, we witnessed all kinds of "Black Swans" events in the world, reflecting the transformation of global political and economic structure. Market volatility will be the norm in the future. Future financial management will need more wisdom and skills than before.


Looking back over the past 10 years, China's wealth market has changed greatly. I formally joined China International Financial Limited by Share Ltd in 2008. 2007 happened to be the first year that the company began to develop wealth management business. At the end of 2009, the company set up the wealth research department to support the needs of the whole wealth management department. The first thing we do is to investigate the wealth management industry abroad, and make a comparison and judgement of China's industry trends.


When we were doing research in that year, the most intuitive feeling is the difference of body mass. In 2009, China's private wealth market was only $5 trillion and 400 billion, compared with us $35 trillion and 100 billion or even Japan's $14 trillion and 900 billion. The growth of GDP in China is so fast, but the wealth accumulated by Chinese people is not ranked in the world. In addition, compared with foreign countries, the gap of financial products that Chinese people can invest in is bigger. At that time, there were probably only four or five major categories of domestic financial products, with a scale of only more than ten trillion yuan, while the United States light public offering fund of this category was about $20 trillion. The data let us judge: the current phenomenon is unreasonable, the growth of China's wealth will be fast in the future, and the existing financial products will certainly not meet the demand of wealth growth.


Before 2010, the wealth management industry is not so prosperous now, most of the way of managing money is also very single. An important reason is that before that, if you can buy a house, you will no longer need to consider other ways of managing money. In 2010, the real estate market began to control. For the first time, people realized that buying houses is not working.

Meanwhile, the non standard trust market was also flourishing at that time. Non standard trust is a private debt loan product issued by a trust company for a project of a company. Now you have realized that trust is not a guaranteed product. But at that time, the whole market was going up, the snowball could roll up, the trust default rate was not as high as it is now, and many people bought it as a profit - saving product. At that time, trust products had a yield of 8% to 10% a year, and the yield of two years was 11% to 12%. This means that about 7 years or so, wealth can double. At that time, a lot of overseas friends who made asset management always felt envious of us, envious of domestic trust products. Under their market conditions, a high-risk product has a good rate of 10% a year. In short, when the market is in good condition, there is no need for financial guidance.


In 2010, there was no third party's independent financial institution that flourished. Securities companies and other financial institutions also failed to establish real wealth.


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