Behavioral bias in the decision-making process is the core causative factor of novice loss. Kahneman's Prospect Theory reveals that the pain of loss is 2.5 times greater than the joy of profit, leading to the typical disposition effect -- selling profitable stocks prematurely (holding them for 7 days on average) and holding losing stocks for a long time (holding them for 45 days on average). The solution to this problem is to build a standardized decision-making process: develop a trading list with buy logic, valuation basis, target price and stop-loss conditions; and implement a “21-day decision rule” with a 3-week observation period for major operations. At the same time, behavior modification tools were introduced to restrain irrational behavior through third-party monitoring mechanisms, and a trading log was established to record emotional fluctuations and decision-making reflections.

Novice investors often view the stock market as an ATM machine, ignoring the underlying logic of the market's operation. the A-share market has three main characteristics: short bulls and long bears (the average bull market of the past 20 years has lasted 18 months, while the average bear market has lasted 29 months), a zero-sum game (where a few make a profit based on the majority's loss), and increased divergence (structural opportunities due to the normalization of new stock issuance). Investors need to establish the correct market perception: set a reasonable return target (10%-15% annualized to outperform 90% of retail investors), fear the cyclical fluctuations of the market, and always keep a cash reserve of 3-6 months of living expenses. Understanding the nature of the market is the cornerstone of building an investment system.

The scientific risk management system consists of three dimensions: position management using the “100 - age” rule to determine the proportion of equity assets, the implementation of the principle of dispersion of a single stock position of no more than 20%; dynamic hedging configuration of 5% - 10% of the index options as a systematic risk hedging tool, and the establishment of stock and bond rebalancing mechanism; stress test simulation of the margin of safety of the funds under extreme market conditions, and to set the maximum retracement tolerance (it is recommended). Stress test simulates the margin of safety of funds under extreme market conditions, and sets the maximum tolerance level of retraction (recommended not more than 20%). Historical experience shows that investors who lack systematic risk control often face devastating blows in market crashes.

Novices often fall into the maze of technical analysis, ignoring the importance of fundamental analysis. To build a valuation system, you need to master three major tools: DCF valuation method to assess the intrinsic value of a company, PEG indicator to determine the reasonableness of the valuation of growth stocks, and price-to-book ratio to analyze the investment opportunities in cyclical industries. At the same time, we should establish a framework for analyzing financial reports, focusing on core indicators such as cash flow, inventory turnover, and accounts receivable. Data shows that 65% of retail investors have cognitive bias towards PE, PB and other basic indexes, and this cognitive disconnect leads to a lack of power in the face of financial fraud and other events.

Novice investors need to go through three stages of cognitive upgrading: mastering financial indicators and valuation tools at the basic level, establishing templates for analyzing financial reports and industry research frameworks at the application level, and practicing live trading through simulated trading and reviewing on a continuous basis at the evolutionary level. It is recommended to use no more than 20% of the idle capital to start the investment journey, positioning the first 3 years as the cognitive construction period. Through reading classic books (e.g. “Securities Analysis” and “The Intelligent Investor”), studying annual reports of listed companies, and participating in simulation training, we will gradually build a complete trading system that includes information processing, decision-making execution, and risk control.

The growth of novice investors needs to go through a triple transformation: from information consumers to information analysts, from emotional traders to rational decision makers, and from passive acceptance to active cognitive iteration. In a market full of uncertainty, the only way to traverse the bull and bear cycle is to establish a scientific cognitive system. Remember, true investment wisdom stems from a deep understanding of the laws of the market, and becomes a continuous transcendence of self-cognition.