On September 23, 2006, I received two posts from female Taoists asking for my opinions on new funds. My argument was not to buy new funds, but it seemed that many people were convinced. After much thought, it probably still falls into a category I call "net asset value phobia." Many people are saying "the higher the net asset value, the greater the risk," and "with high net asset value, there is no room for further increase." In response to this mentality, fund companies have come up with splits or launched Fund No. 2, reducing the net asset value back to 1 yuan. There has also been aggressive issuance of old funds. With the scale of funds getting larger and larger, it has even formed a wave of frenzied buying. It seems like if you don't get these low-net-value funds, you will miss out on a good investment opportunity.
Are we really afraid of high net values? People's perceptions are exactly the opposite. I am against "net asset value phobia." Let's assume there are two funds with the same investment strategy, the same investment portfolio, the same stock position, and even the same fund manager—let’s call it a single structure fund.
Fund A currently has a net value of 1.5, while Fund B has a net value of 1.1. When you have 10,000 yuan in hand, you can buy 6,667 shares of Fund A and 9,091 shares of Fund B. Clearly, you own fewer shares of Fund B.
But because of the same investment method, even buying the same stocks, after one year, the stocks held by Fund A increased by 10%, so its net value reached 1.65. Similarly, Fund B also rose by 10%, bringing its net value to 1.21. However, your fund market value is 11,000 yuan regardless of whether you bought Fund A or Fund B. The result is the same: a 10% gain. Conversely, if they fall, both would fall equally.
The same investment method means the same returns and risks, rising and falling together, with no difference between them. The return only depends on your total investment amount and the percentage change in each unit of the fund, not related to the level of net value or the number of shares.
A fund company's success is judged by the growth of total assets. Total asset growth comes from two aspects: an increase in total fund shares and an increase in the price per share (i.e., the fund's net value). When total assets grow, the fund company's 2% management fee increases, leading to higher profits. Therefore, they naturally take all measures to improve these indicators. Due to "net asset value phobia," fund companies carry out splits or duplications, attracting countless new investors. Even without increasing the net value, the company can achieve significant profits.
For an individual investor, once you invest in a fund, the number of shares is basically fixed (unless reinvesting dividends). What we care about is the rise in net value. Splits or duplications are just games played by the fund company to expand the total number of fund shares.
Ignoring changes in fund shares, assuming a fund neither issues new shares nor redeems old ones, the change in total assets is solely reflected in the change in net value. Assets increase, net value goes up; assets decrease, net value drops. Simply put, a well-performing fund has a high net value, while a poorly performing fund has a low net value. For example, two funds established at the same time, both running for a year as stock funds, one ends up with a net value of 1.1, the other at 1.5. This means one gained 10% over the year, while the other gained 50%.
Which fund do you think is better? Which one would you reinvest in? That’s why I am against "net asset value phobia."
Is there a cap on net value? In fact, there is no bottom limit either. Just like stock prices, as long as the company keeps making money, the stock price will keep rising (excluding short-term fluctuations due to investor psychology and policy changes).
A fund company is essentially an investment company specializing in securities. The better the investments, the more total assets, the higher the net value, and the greater our returns. Without considering stock-related questions, wouldn't you agree that an investment company with more capital operates better and faces less risk?
Can total assets have a bottom limit? Why do people suffer from "net asset value phobia"? It's because we apply our understanding of stocks to funds. In reality, when a fund buys a stock at a low price and sells it when it rises, the risk associated with that stock decreases. The fund sells the stock, converting assets from stock to cash without decreasing the net value. After selling, the fund's risk is gone because it holds all cash, which has no risk. Then it buys risky stocks again, waits for them to rise, and sells when the risk becomes too high. Thus, the total assets and net value increase, but the risk does not accumulate.
Therefore, the risk of a fund is determined by the risk of the stocks it holds. The fewer the stocks, the lower the risk. This has nothing to do with the absolute level of the fund's net value.
In one of my previous articles, I mentioned an example: a famous American index fund, the S&P 500 Index Fund, with a net value of 122 USD. It was established in the late 1980s at 20 USD and is now at 120 USD. I believe that decades later, we might see foreign funds with a net value of 100 yuan.
Another example: the Tianyi Fund split recently. Today's net value is 1.0368, originally at 1.0925. We all know that Tianli is a bond fund, while Tianyi is a stock fund, with Tianyi having significantly higher risk than Tianli.
In my last article, I mentioned that I prefer large investment companies and narrowly focused companies. Except for new funds, their smaller funds tend to be those with lower-ranked net values.
Brothers, don’t be afraid of high or low net values. Don’t worry about this issue. As long as the foreign economy continues to develop, our fund net values will continue to rise, with no bottom limit.
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- Weekly Entrepreneurial Board subscription guide
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