In recent years, the A-share market has undergone several rounds of style transitions, including shifts from core assets to thematic investments, from micro-cap strategies to dividend-yielding assets, leaving investors struggling to keep up. The unpredictability of the market poses a significant challenge for those seeking to capitalize on opportunities consistently. Investors adopt various methodologies—some follow the market's fluctuations, while others adopt a more selective approach, claiming "there are a thousand rivers, I only seek a single scoop." As an active investment manager, I firmly believe that adhering to some fundamental principles and strategies is vital—namely, engaging with what is worth pursuing while also knowing what to forgo, in order to achieve satisfactory long-term investment returns.

The phrase "A man of honor knows that there are things must be done and things must not be done." embodies a profound Chinese philosophical outlook, implying choices in both action and inaction. It emphasizes a duality where "to do" pertains to proactive selection, while "not to do" reflects the courage to abandon choices that do not align with one’s objectives. This concept should extend across three levels of portfolio construction: timing, asset allocation, and individual stock selection.

Firstly, let’s address timing. Selecting the appropriate timing involves identifying various beta parameters for a portfolio at different points in time. This selection is intrinsically linked to both the weighting of stocks and the overall structural composition of those stocks. The short-term rise and fall of the market can be elusive; making operational decisions based on these fluctuations often leads to inefficient trading characterized by "buying high and selling low." The market displayed substantial volatility in early 2024—January saw a notable decline, while February witnessed a significant rebound, underscoring the difficulty of timing decisions. The famous quote by Warren Buffett—"be fearful when others are greedy, and greedy when others are fearful"—is easier said than done in the actual trading environment. I believe that what truly matters is having a macro perspective, where strategies are crafted based on the broader economic landscape, policy expectations, and the developmental phases of various industries, followed by ongoing adjustments, rather than drastic and erratic shifts.

Secondly, we turn to asset allocation. Choosing an industry or an investment theme is a crucial aspect of investing. The market is flooded with an array of concepts and short-term speculative opportunities; this is an area I believe is best left unexplored—the "." Genuine investment themes reflect longevity and are tied to significant historical contexts that cultivate trends over the medium to long term. For instance, as China's economic structure transitions towards high-quality development, there is an urgent push to enhance the modern industrial framework and foster new production capabilities, likely accelerating growth in sectors, such as semiconductors, that are currently lagging. Concurrently, there’s an anticipated increase in healthcare demands driven by an aging population. Authentic investment themes are marked by stability; they do not undergo rapid change as speculative concepts do; they possess operational viability, enabling the identification of robust investment opportunities, such as those found in the renewable energy sector between 2020 and 2021. Conversely, short-term themes often lead to challenging pathways when identifying credible investment targets.

As time progresses, the fundamental contradictions underlying certain industries or investment themes may shift. For example, starting in 2022, the high demand cycles of the previous two years drew significant capital into the lithium battery and photovoltaic sectors. However, as growth rates began to decline, surplus capacity emerged as the predominant issue, leading to a significant decrease in profitability and a deterioration in the viability of these sectors for investment. This highlights the importance of continuous monitoring and judgment.

Thirdly, individual stock selection represents the practical stage where investment strategies materialize. It is crucial to emphasize the necessity of selecting high-quality securities. "High-quality securities" represent the most manageable investment factors and have proven effective over time. Companies that epitomize this classification usually exhibit durable business models, robust competitive advantages, and exemplary corporate governance, frequently presided over by leaders who possess remarkable entrepreneurial spirit. Over the long term, such companies demonstrate extraordinary resilience and evolvability, allowing them to thrive and create shareholder value regardless of changing competitive landscapes. Buffett’s preference for firms with wide economic moats, likening their acquisition to securing a cash cow shielded from drastic competitive threats for years to come, markedly enhances the likelihood of investment success. Some companies might achieve significant short-term price gains merely due to their association with trending industries or labels, but often at a perilous risk; once the market hype dissipates, they could face severe downturns.

Additionally, financial analysis plays a pivotal role. The A-share market has traditionally focused heavily on profit growth; however, an assessment of balance sheets and cash flow statements provides a clearer picture of a company's operational quality. If a company relies on high leverage to generate revenues, it could face immense pressure in a downturn, as exemplified by the real estate industry—a sector notorious for its high leverage, now grappling with collapse risks during extended periods of market contraction. It becomes vital to scrutinize whether profit growth correlates with matched cash flows; otherwise, it may represent mere illusory wealth. For example, in the environmental sector, companies with high construction revenue ratios frequently exhibit poor cash flows, signaling reduced growth quality. The recent policy endeavors to enhance delisting protocols may further expose low operational quality firms to significant risks.

Navigating the complexities of the market is no small feat, but by focusing on the underlying contradictions in investment practices and adhering to the principle of "there are things must be done and things must not be done," one can ultimately reap the benefits that timely investments and thoughtful strategies can yield.