Those Years When I Was Forced to Top the Forbes List

Chapter 95 My Fleet (Part 2)

"The stock market is actually no different from other markets. It's just about buying and selling. The more people buy a stock, the higher its price."

"It's like an antique market. Only when there are people buying and selling antiques can their prices rise. Even in a vegetable market that sells consumables, if there are no customers, the vegetables won't fetch a high price, right?"

"Therefore, the foundation of a bull market is a significant increase in trading volume. With more buying and selling, the market is booming, and some stocks will always rise sharply. When stocks rise sharply, someone will make money. When someone makes money, there will be stories, thus creating a profit-making effect and guiding the flow of funds and trading volume."

"In addition, Uncle Hong, you are right. The stock market is too cold right now, and the index has reached a low point. Precisely because of this, once it heats up, it will form a huge upward trend. As for the resistance level you mentioned, I specifically showed you 998 points this time so that you would know the country's attitude."

"The 1,000-point mark is unbreakable; this is the resistance level. When the market reaches this level, someone will come to its rescue. 998, this is a one-time event, and there will never be another. Moreover, this bottom resistance level will rise accordingly. Uncle Hong, this opportunity is no less than the old five stocks back then."

Chen Xuebing sat on a wooden sofa and talked eloquently, constantly stimulating the nerves of the two men.

Especially this phrase, "old five-part formula".

The first batch of stocks to be listed on the exchange was issued in the late 80s in Shenzhen.

Shenzhen Development Bank, Shenzhen Vanke, Shenzhen Jintian, Shenzhen Anda, Shenzhen Yuanye.

Most people were hesitant to engage with this new concept. In order to promote the stock, the government even issued an official document requiring cadres in various units who were "on state payroll" to take the lead in purchasing it.

Back then, stocks were just a piece of paper. Many people felt it was a forced distribution, a waste of money, and threw away their stocks, only to regret it later.

Those who didn't lose their money later became rich overnight.

Not only did those who bought stocks get rich, but some who bought stocks also got rich by carrying bags and money around to buy stocks. When the original shares surged again, they also got rich.

Information spread slowly back then.

In the early 90s, Shanghai also implemented a system of allocating original shares, which became known as the "Old Eight Stocks": Shenhua Electric, Yuyuan Mall, Feile Shares, Feile Acoustics, Vacuum Electronics, Phoenix Chemical, Aishi Electronics, and Yanzhong Industrial.

Before Shanghai residents could even react to the news, a group of Shenzhen residents were already eager to flock to Shanghai to buy stocks.

That was also the time when Yu Chunyin made his fortune.

Yu Chunyin had served in the Vietnam War, and his comrades were scattered all over the country. They often wrote letters and chatted by phone, so he had relatively abundant information resources.

He had known about Shenzhen for a long time, but later, due to insufficient education and the rapid promotion during the war, after being transferred to the local army, his unit made it clear that he would not have a chance for promotion for eight or ten years. After working for a while, he became disheartened and left the military to start his own business early.

He was among the first to know about the news regarding Shanghai stocks.

Back then, you needed a certificate from a department-level cadre to fly, and Yu Chunyin had connections, so he really got wings and was among the first to arrive in Shanghai.

People from Shanghai are shrewd and don't trust people from Shenzhen much, thinking they are cunning and afraid of being cheated. Yu Chunyin, on the other hand, had a military officer's certificate and comrades from his unit in Shanghai who helped him acquire a lot of stocks.

He got the tickets and sold them to people in Shenzhen as soon as he left the house.

I didn't bring much money with me when I went, but in just a few days, I made several times my initial investment by buying and selling. Later, I had a batch of tickets stuck in my hands.

This stock is called Vacuum Electronics, with a maximum return of 25 times. It is the same "Electric Vacuum" that A Bao queued up to buy in the TV series "Blossoms". It accounts for two-thirds of the total market value of the eight old stocks in Shanghai.

Yu Chunyin sold 400 shares of Electric Vacuum when the price rose from 100 yuan to 1400 yuan after the company went public, which became his first pot of gold after starting his business.

Hong Yongqiang was also in the army back then, but his rank was not high. He could only watch Yu Chunyin eat meat with envy. Later, in 92, he followed the trend of the times and went into business. He made his fortune even faster than Yu Chunyin. After he had some money, he also went to the stock market to speculate on stocks and made a profit directly in the stock exchange.

In truth, Hung Wing-keung is a true stock trader and has a better understanding of exchange market rules.

“Even if what you say makes sense… the overall market and individual stocks are different. The overall market has seen some gains, but which specific stock will rise? There are just too many stocks in the market now, one or two thousand.” Hong Yongqiang pondered for a moment.

"Of the 1358 companies, 403 participated in this shareholding reform. The reform will be carried out in batches, with one batch succeeding before moving on to the next," Chen Xuebing gave an accurate figure.

Hong Yongqiang immediately said, "Those 403 companies are definitely not worth buying! It's impossible to succeed!" He shook his head repeatedly as he spoke.

Chen Xuebing laughed: "Uncle Hong, look, you've misunderstood the policy again! Have you even read the document? Do you know how to amend it?"

Hong Yongqiang shook his head: "Anyway, I know that the stock market can't take off because of this reform. This reform didn't just start now; it's been going on for several years! The circulating price has already been inflated, and the gap between it and their state-owned shares is several times! With so many state-owned shares being released into the market, how can the stock price go up?"

Chen Xuebing listened patiently to his speech, then lightly tapped the sofa armrest with his finger.

“Uncle Hong, your understanding is not sufficient. Let me tell you about this stock reform. Full circulation of listed stocks is a concept that has always been consistent in Western secondary markets. An open stock market should also be like this. In the past, the shares of state-owned enterprises issued in the stock market had no voting rights in decision-making, which is definitely not in line with market rules.”

"The reform has not been completed in the past few years, and there are several controversies."

"One is the amount of shares to be circulated in the market, which has now been determined. The existing stock remains unchanged, while the new stock will be raised. After the issuance, the non-tradable shares will receive corresponding rights issues, and the original non-tradable shares will be subject to regulatory restrictions on sale. In other words, there will not be a situation where a huge amount of non-tradable shares enter the market."

Secondly, who gets the money from the sale of the state's existing shares? The newly issued shares are returned to the companies, becoming publicly owned legal person shares, and are linked to the raising of social security funds.

"Another issue is how to merge the stock exchanges. One option is to merge directly at market price, and the other is to merge with consideration, which is compensation. It has now been decided that the guiding principle will be to distribute 3 shares for every 10 shares of tradable stock, which is equivalent to 30% of the state-owned shares being compensated and entering the market."

"This is beneficial to shareholders. Don't think that the price difference between state-owned non-tradable shares and tradable shares is too big. The reason why state-owned shares were originally undervalued is because they were valued based on net asset value. In fact, listed companies should be valued based on price-earnings ratio. Think about it, how much money do those large state-owned enterprises make when they are listed? Once full circulation is achieved and they are connected to capital rules, their valuation will definitely increase across the board."

"I'll say it again: if you ignore it now, you'll be fighting tooth and nail for it later. It's a 10-for-3 stock split! If the stock price doesn't fluctuate much, buying it will be a sure win. I predict that after the stock reform and stock split, the stock price will return to its original level in one or two years at most, or even higher. Those 3 shares will be given away for free. At that time, everyone will realize that the companies undergoing stock reform are giving away money, and the market will erupt with even greater enthusiasm, with everyone scrambling for the reformed stocks."

After Chen Xuebing finished speaking, he paused for a moment, then smiled and said, "The first one is Sany Heavy Industry. It has already suspended trading on June 1st for share reform. For every 10 shares, 10 shares will be issued and 2 yuan in cash will be distributed. Before the suspension, it had already been speculated to be over 17 yuan. It will resume trading in a few days. The share reform plan will be implemented at the end of June, June 30th, and the ex-rights will be carried out. After the ex-rights, the price... you can wait a few months and see. The market will react."

Sany Heavy Industry, a pioneer in share reform, experienced a period of decline after the reform, but after a large number of companies successfully reformed, its stock price was driven up all the way, reaching a peak of 70 yuan in 07.

This is after the 10-for-10 stock split, the stock price should be multiplied by 2, meaning it has risen from the current price of 17 yuan to 140 yuan.

This incident was regarded as a successful example of share reform and was widely reported, which is why Chen Xuebing remembered it.

Hong Yongqiang took a while to digest the information and felt that Chen Xuebing's insights were very professional, at least much more professional than his own, and somewhat like those of a financial elite.

After thinking for a long time, he hesitated and said:

"You mean...you want me to buy Sany Heavy Industry?"

Chen Xuebing smiled and shook his head: "Not really. This matter will take some time to develop, after all, there are still many people who are bearish like you."

Hong Yongqiang was speechless.

So you're saying that Lao Tzu was also among the ignorant masses?

"Then what should we buy?"

"Didn't I say the market is going up? Buy the index fund!"

Hong Yongqiang's eyes widened: "The market index is an index, how can you buy the market index?"

These days, there aren't many ETF index funds; you can't buy the overall market index. Chen Xuebing smiled faintly: "Buying it all proportionally is just buying the overall market index, isn't it?"

Hong Yongqiang touched his forehead, feeling like he had heard some nonsense.

Even Yu Chunyin spoke up: "What nonsense are you spouting? You yourself admitted that you bought all 1300+ stocks?"

This is something that stock market investors couldn't even imagine a few years ago. In the past, you had to queue at the exchange to buy stocks. You had to fill out a "Securities Purchase Order" and hand it to the red-vested trader to buy one stock at a time.

Buy all the shares? Be prepared to wait in line for a month.

Even if the VIP room is operated by the VIPs themselves, the operation time is unimaginable.

but now…

Chen Xuebing continued with a smile, "Didn't I already say that now you can use Wanguo's 'Great Wisdom' to trade stocks? You can trade from home, without having to queue, and you don't have to buy everything. Just pick the heavyweight stocks and blue-chip stocks. There are dozens of stocks, covering more than 70% of the market capitalization. When the market rises, these 70% will naturally rise as well."

The heavyweight stocks are mostly state-owned enterprises with very large market capitalizations.

"Blue-chip stocks" is a concept that emerged in the last two years, referring to stocks with consistently strong performance, high returns, and high investment value.

That made them feel a little more confident.

Hong Yongqiang clicked his tongue: "Dozens...that's a lot. Which stocks are you buying? Some of them have high prices."

Stocks are bought in "lots," with 100 shares per lot. This is to reduce the frequency of trading. For a stock priced at 10 yuan, the minimum purchase price is 1000 yuan.

If you buy several lots of each of these dozens of units, it will amount to hundreds of thousands.

"Heavyweight stocks have large market capitalizations and relatively low share prices. Besides, if you're going to invest, there's not much point in speculating unless you have three to five million yuan to spare, right?"

Chen Xuebing said it casually.

Hong Yongqiang glanced at Yu Chunyin.

Yu Chunyin's face twitched: "You're really talking big! Have you ever seen three or five million?"

"Uncle Hong, I'm here to help you make money, but we need to make things clear."

Chen Xuebing's expression turned serious, and he said again:

"I plan to set up a fleet and operate it like a private equity fund. Although we will not register a private equity fund company, we will have traders, fund managers, and brokerage seats. We will also charge management fees and commissions. The industry standard is an annual management fee of 2% and a profit share of 20%."

He paused after speaking, observing the expressions of the two people.

The two of them didn't respond immediately, as if they had already gotten used to his outrageous demands.

But Hong Yongqiang wasn't his uncle after all, and there was no reason for him to indulge him, so he changed the subject and said:
"Of course, since this is my first time working with Uncle Hong, I can offer some more secure terms. We'll share the risks. You'll provide the capital, and we'll set a 10% stop-loss line. Once that line is reached, the position will be forcibly closed out, and I'll cover the 10% loss. But if we make a profit, we'll split it equally. My uncle is guaranteeing it for me."

Yu Chunyin slammed her hand on the table.

"I knew it! Calling me here couldn't be anything good! And I'm the guarantor again?! What about that 30 you were supposed to have?"

Chen Xuebing waved his hand: "Uncle, don't worry, would I let you suffer a loss? I'll pay you back the 30 yuan soon, consider it a guarantee fee!"

He hadn't originally planned to ask his uncle for any money; the 30 yuan was something he had to do at the time, and he would pay it back sooner or later.

Yu Chunyin glared at him and said, "Fine, fine, just give me back 30. I'm afraid you'll ask me for 300 million next time!"

Hong Yongqiang laughed too: "Xiao Chen, you can't keep messing with your uncle."

Chen Xuebing chuckled and said, "Don't worry, Uncle Hong, next time I won't trick my uncle, I'll trick you instead."

Hong Yongqiang touched the back of his head.

???

Yu Chunyin was already silently adjusting his belt.

Chen Xuebing quickly tried to smooth things over: "What I mean is, this fleet has very high expenses. The operator is like a fund manager, and there are also traders, seat fees, venue fees, and these alone cost millions every year. We definitely need a large amount of capital to spread the management fees. After I help you make money, you have to introduce me to some friends or something, right?"

Millions in operating expenses are not much, even very low.

A typical private equity fund needs to employ a large number of investment research staff to screen and conduct in-depth investigations of the companies behind the stocks to be invested in. Moreover, all of these people belong to the front office (investment department). In addition, there is the middle office (risk control and compliance department) and the back office (finance, administration and human resources).

Why do private equity firms raise hundreds of millions of dollars so easily?

Because according to the common standard of 2% management fee, 200 million would only amount to 4 million in management fees. If no profit sharing is made, the basic management fee would just be enough to support this large group of people.

Now that we have Chen Xuebing's insightful information, the investment research position can be eliminated, as he can make his own judgments on investment targets.

However, China's financial industry is not yet very prosperous, and the two of them didn't know much about private equity. Chen Xuebing's mention of an annual expenditure of one million yuan left them speechless.

"Are you so confident that you can make a profit?" Hong Yongqiang asked.

Chen Xuebing smiled slightly: "To be honest, I've already rented an office, so it's convenient for investors to come and take a look. The environment is quite nice. Shall we have a meal and I'll take you two to see it?"

Yu Chunyin and Hong Yongqiang exchanged a glance.

……

It was around 7 or 8 o'clock in the evening.

New York New York Building.

Yu Chunyin and Hong Yongqiang were surprised from the moment they got on the elevator.

"This is... a newly built building, right? How much is the rent?"

"We rented a second-largest suite office, which cost around 22 yuan a year."

"You gave me 300,000, and you spent it here?"

"Hehe, Uncle, just keep an eye on your 300,000. I'll show you something new in a bit."

(End of this chapter)