Eliza WongThe Dramatic Theater of China’s Bull Market
China’s roaring bull market has become a stage where investment legends are both made and broken. While the broader indices climb toward 3900 points, creating fortunes for some, others watch their carefully constructed portfolios deteriorate against all odds. The contrast between soaring markets and sinking funds reveals crucial lessons about investment strategies, market timing, and the psychology of wealth preservation.
This market environment separates tactical traders from strategic investors, exposing both the opportunities and pitfalls of various approaches. As we examine several prominent cases, we uncover patterns that every investor should understand before committing capital in volatile conditions.
Top Performer Meets Sudden Reversal
Chen Xiaoqun, one of China’s most successful short-term traders, achieved nearly 1000% returns by August through aggressive positioning in momentum stocks. His approach involved identifying emerging trends and leveraging substantial capital to ride wave-like movements in small to mid-cap stocks.
His strategy unraveled dramatically with Shenghong Technology. After establishing a significant position on Friday, the stock declined for two consecutive sessions, forcing him to exit at a loss. Ironically, immediately after his exit, Shenghong Technology surged to new highs, demonstrating the cruel timing challenges active traders face.
Chen’s public reflection on social media captured the emotional toll: ‘Only I get hurt in the end.’ This episode illustrates how even sophisticated traders with exceptional track records can fall victim to market volatility and timing misfires.
Key Lessons from Momentum Trading
– Market timing remains exceptionally difficult even for professionals
– Liquidity constraints can force exits at precisely the wrong moments
– Psychological factors often override analytical decisions during stress
The Remarkable Comeback Story
While some stumble, others stage impressive recoveries. Xueqiu influencer ‘Worry-Free Investing’ represents the redemption narrative after his 2022 departure from markets following significant losses. His philosophy of ‘capital preservation first’ ironically failed to preserve capital during the previous bear market cycle.
With support from family and renewed conviction, he returned to markets with a refined approach. His focused positions in recovery stocks, particularly his well-timed exit from BeiGene near its peak, generated over 1.3 million yuan in profits this year alone.
This turnaround demonstrates how adaptation and refined strategy can produce dramatically different outcomes even for previously struggling investors.
Elements of Successful Recovery Investing
– Willingness to acknowledge and learn from previous mistakes
– Strategic patience in waiting for optimal entry points
– Clear profit-taking discipline rather than emotional attachment to positions
The Value Investing Veteran’s Struggle
Li Jie, known online as ‘Crystal Fly Swatter,’ represents the traditional value investing approach facing unusual challenges. With over 2 million followers and two published books on investment strategy, he built his reputation on steady returns through difficult markets. His claimed 30% annual compounded returns during five bear market years suggested exceptional skill in capital preservation and growth.
His transition from individual investor to fund manager through the launch of Huili Crystal Stable Private Fund in 2019 and Huili Crystal Select Private Fund in 2020 marked his formal entry into professional money management. This move coincided with changing market conditions that would test his philosophy severely.
The value investing veteran initially positioned his funds in what appeared to be conservative choices: leading chip manufacturers, consumer goods leaders, and established consumer electronics companies. His balanced approach seemed designed to weather market volatility while capturing long-term growth.
The Performance Collapse
By 2022, Li’s funds demonstrated concerning performance. The Huili Crystal Select Private Fund B, launched in September 2020, showed a cumulative net value of just 0.72 by August 2024. Remarkably, this represented further deterioration from its April 2022 value of 0.77, despite the Shanghai Composite Index rising from 3200 to nearly 3900 points during the same period.
This divergence between broad market performance and fund results raises questions about strategy execution, stock selection, and whether traditional value approaches remain effective in current market conditions.
Analyzing the Value Investing Conundrum
The struggle of this value investing veteran highlights several challenges facing traditional fundamental analysis in modern markets. While Li correctly identified quality companies with strong fundamentals, their stock prices failed to respond to improving business conditions as classical valuation models would predict.
Several factors may explain this disconnect: market preference for narrative over fundamentals, sector rotation away from traditional industries, and changing investor demographics favoring growth stories over value propositions. The value investing veteran maintained positions in companies showing operational improvement but lacking investor interest.
His public communications revealed continued faith in his approach, noting that ‘excellent companies will eventually outperform market averages.’ However, the extended duration of underperformance tests the patience of both investors and fund managers alike.
Portfolio Construction Questions
– Did concentration in out-of-favor sectors create unnecessary headwinds?
– Were position sizes appropriate given the volatility of individual holdings?
– Could tactical adjustments have mitigated losses during the worst periods?
The Psychology of Underperformance
Li’s September commentary revealed the emotional challenge of watching others prosper while his fund struggled: ‘In a bull market, it can actually be agonizing—every story of someone making more than you, every time you get close to your profit target only to see a pullback.’
This acknowledgment touches on the comparative psychology that affects all investors during extended periods of underperformance. The value investing veteran faces additional pressure as his public profile attracts scrutiny that most fund managers avoid.
His health challenges, including reported heart issues in 2022, further complicated decision-making during critical market periods. The interaction between physical health, mental state, and investment performance remains an underdiscussed aspect of fund management.
Strategic Questions for Value Investors
The experience of this value investing veteran raises important questions about the application of traditional value principles in contemporary markets:
– How should value investors adjust when valuation disparities persist longer than historical patterns suggest?
– What role should tactical asset allocation play in pure value approaches?
– When does patient conviction become stubborn attachment to failing theses?
– How can value funds communicate during extended underperformance to maintain investor confidence?
The Micro-Cap Phenomenon
Li’s July observation about micro-cap indexes outperforming by nearly 50% year-to-date highlighted an opportunity his fund apparently didn’t capture effectively. This raises questions about whether strict adherence to traditional value criteria caused missed opportunities in smaller companies showing exceptional growth.
The tension between maintaining philosophy and adapting to market realities represents the central challenge for all investment strategies during periods of structural market change.
Lessons for Investors and Fund Managers
The contrasting fortunes of these investors provide valuable insights for anyone managing capital in volatile markets:
– Past performance truly may not predict future results, even for respected veterans
– Strategy and market conditions must align for success—even good strategies fail in wrong environments
– Transparency during difficult periods helps maintain investor trust
– Health management is risk management for fund managers
– Flexibility within philosophical boundaries may improve outcomes
Rebuilding from Drawdowns
For funds facing significant drawdowns, the mathematical challenge of recovery becomes substantial. A fund down 28% requires nearly a 40% gain just to return to breakeven. This reality creates pressure to take additional risk precisely when risk management should be prioritized.
The value investing veteran faces this difficult recovery path while maintaining his investment philosophy and meeting investor expectations.
Navigating Future Market Conditions
As markets evolve, the lessons from these cases become increasingly relevant. The outperformance of quantitative approaches, factor investing, and theme-based strategies challenges traditional fundamental analysis. However, market history suggests that eventually, valuation matters—the question remains when this eventual convergence will occur.
For value-oriented investors, the current environment requires exceptional stock selection, patience, and perhaps broader definition of what constitutes ‘value’ in today’s market structure. Companies with strong cash flows, reasonable valuations, and growth potential may offer the best of both worlds.
The value investing veteran’s experience demonstrates that even well-researched positions in quality companies can underperform for extended periods. This doesn’t necessarily invalidate the approach but highlights the need for appropriate expectations and risk management.
Moving Forward with Wisdom
The dramatic contrast between soaring markets and struggling funds contains essential lessons for all market participants. Success requires more than good stock selection—it demands appropriate strategy for market conditions, robust risk management, psychological discipline, and sometimes, humble acknowledgment when approaches need refinement.
For investors considering fund allocations, these cases highlight the importance of understanding strategy limitations, manager adaptability, and alignment between investment approach and market environment. Diversification across strategies may provide better protection against any single approach falling out of favor.
For the value investing veteran and others facing challenging conditions, the path forward likely involves balancing conviction with adaptability, communicating transparently with investors, and maintaining the discipline that created past success while acknowledging changing market realities. The ultimate test of any investment philosophy isn’t just its intellectual consistency but its ability to preserve and grow capital through various market environments.
As markets continue evolving, the investors who thrive will likely be those who learn from both success and failure, adapt without abandoning core principles, and maintain the humility to recognize that markets ultimately determine what works in any given period.
