Foresight has published an opinion article that reduces one of investing’s hardest problems to three actions: getting the call right, holding the position, and not moving too much. The piece opens with an early interview clip featuring Lin Yuan and distills his view into two lines:
“Use a fully invested position to guard against the risk of missing out, and use stock selection to guard against the risk of declines.”
The author writes that the wording may sound aggressive at first glance, but behind Lin Yuan’s blunt style sits a framework centered on focused investing rather than speculation.
Most of the return may come in a very small slice of time
The article says many investors, when looking back at past decisions, often arrive at the same regret: they were positive on an asset, but did not buy it, or stayed in cash, and then watched the move happen without them.
Lin Yuan, as quoted in the piece, points to a pattern that the author says also appears in other materials, interviews and personal experience over the years: an asset may spend only 5% or even less of its time in a real surge, while 90% or more of the time it is either flat or falling.
Under that logic, if an investor misses that 5% window and the asset offers no cash dividend, the richest part of the return is largely missed as well. The article argues that if gains can only be captured through the price jump itself, investors need to make sure they are present for that short stretch.
For investors who do not use technical analysis, the proposed answer is to stay invested
The piece notes that some people would respond by trying to use technical analysis, buying just as that 5% rally is about to begin.
But the author says that approach does not fit every investor, including the author personally, and may not be something they can truly master. In that setting, Lin Yuan’s method, as presented in the article, is to remain fully invested and keep waiting.
The article adds another observation from Lin Yuan: among the people around him, those who were out of the market during a bear market, meaning they held no position, often did not make money once the bull market arrived, or they still missed that 5% period of outsized gains.
The author then adjusts Lin Yuan’s idea based on personal experience. Instead of being fully invested in the absolute sense, the author says the better version is to hold only money one can completely afford to lose, after weighing risk tolerance. The position, the article says, can then be built step by step through dollar-cost averaging around a preset buying level.
The article puts the defense against declines in selection before the trade, not selling during it
The piece goes on to recount a more direct question from the interviewer: if it feels obvious that the trend is heading down, how can an investor avoid that decline without selling?
Lin Yuan’s answer, according to the article, is that if an investor sells on that feeling, there is a good chance the asset cannot be bought back later, leaving the investor on the sidelines.
That leads to the article’s main point on drawdowns. The way to deal with declines, it says, is not to sell because of a perceived move lower, but to choose well before buying and select an asset that is good and valuable. In the article’s telling, if the asset is truly strong, it can fall and still rise again later, which means the current drawdown does not have to dictate the holding decision.
Buffett, Munger and Duan Yongping are cited on tolerating large drawdowns
The article also brings in similar comments attributed to Warren Buffett, Charlie Munger and Duan Yongping.
Buffett:
- “People who cannot bear a 50% drop in stock prices should not speculate in stocks.”
- “If a decline of more than 50% in the stocks you own over a short period would make you extremely uncomfortable, then you should not own stocks at all.”
Munger:
- “If you cannot calmly face a 50% drop in the stock market, then you do not deserve to be a common stock investor, and you will get the mediocre return you deserve.”
- “If you cannot tolerate a 50% drop in stock prices, you are probably not suited to investing in stocks.”
Duan Yongping:
- “If you cannot withstand a 50% drop in a stock, you should not buy it.”
The author’s closing view
The article closes with the author’s own position. If an investor is truly able to sell before a major decline and can also make sure to buy back at a lower level later, then that approach is acceptable.
If not, the author argues, then for an asset with real value and potential, the better course is to withstand the decline and keep the position.
The piece ends with a disclaimer stating that markets carry risk, investing requires caution, and the article does not constitute investment advice. Readers are told to assess whether any opinion, view or conclusion fits their own circumstances and to take responsibility for any investment decision made on that basis.