I’ve always wanted to do things, like buying a suitable blue-chip stock and just letting it sit, waiting for it to drop so I could see the situation and not add more if it rose, but ultimately never managed to execute that. It’s much easier to find an appropriate broad market index fund – buy an ETF instead. My current plan is: a brokerage ETF and the Hong Kong Technology Index ETF.

The kind of trading strategy described above has a professional name: bottom-up buying during a downtrend.

As for what’s next, my plan is to completely practice this by choosing a broad market index fund that can outperform the returns of regular savings accounts.

Brokerage ETFs

A brokerage ETF is an Exchange Traded Fund (ETF) whose primary investment target is Chinese securities companies. It primarily invests in the listed stocks of Chinese securities companies in the stock market. Brokerage ETFs typically track a specific brokerage company index, such as the China Securities Brokerage Index.

I previously bought one, but it was at a peak and ultimately resulted in losses, so I liquidated my position. In the Chinese market, whenever there’s a bull run, brokerage companies are bound to rise – and by how much, depends on investor sentiment.

Hang Seng Tech Index

The Hang Seng Tech Index is an equity index launched by the Hong Kong Exchange, designed to reflect the overall performance of the technology industry in Hong Kong markets. The index includes major technology companies listed on the Hong Kong Stock Exchange, covering areas such as internet, e-commerce, cloud computing, and artificial intelligence.

As of May 20, 2025, the top ten constituents of the Hang Seng Tech Index (code: 800700) and their weightings are listed below (data sourced from multiple authoritative sources):

1. Xiaomi Group-W (01810.HK): approximately 8.82%
2. Tencent Holdings (00700.HK): approximately 8.14%
3. Alibaba-W (09988.HK): approximately 7.72%
4. JD Group-SW (09618.HK): approximately 7.60%
5. Meituan-W (03690.HK): approximately 7.35%
6. Kuaishou-W (01024.HK): approximately 6.10%
7. Li Auto-W (02015.HK): approximately 6.09%
8. SMIC (Semiconductor Manufacturing International Corporation) (00981.HK): approximately 5.70%
9. NetEase-S (09999.HK): approximately 4.59%
10. Ctrip Group-S (09961.HK): approximately 4.48%

Total Weighting: Approximately 66.6% (Some sources show the top ten weighting between 68%-69%, due to differences in statistical timing.)

Key Notes

1. Weight Cap Mechanism: The Hang Seng Tech Index sets an 8% weight limit for individual stocks. For example, before the adjustment on March 2025, SMIC’s weighting exceeded 8%, but was subsequently passively reduced to comply with the limits.

2. Constituent Stock Adjustments: On May 16, 2025, the Hang Seng Index Company announced that BYD ( 01211.HK ) will be included in the index and that Ruyi Group (00772.HK) will be excluded. The adjustment will take effect on June 6th. Therefore, the current (May 20th) constituent stocks are based on the pre-adjustment list, and BYD has not yet been included.

3. Industry Distribution: Among the top ten constituent stocks, internet technology companies (such as Tencent, Alibaba, Meituan) dominate, with new energy vehicles (Xiaomi, Ideal) and semiconductors (SMIC) having significant weights, reflecting the index’s coverage of technology and the new economy.

4. Data Timeliness: Differences in data from different sources are mainly due to differences in statistical timing points. For example, the data shown in March 2025 shows that the top ten combined accounted for approximately 69.4%, while the data on May 14th was 68.82%, reflecting the dynamic impact of market fluctuations on weights.

Short Put Cover

“Short Put Cover” is an investment strategy that refers to a trader’s proactive buying of stocks in a declining price trend, anticipating the stock price approaching its bottom and aiming to reduce their average cost per share. This approach falls under “short-side trading,” which involves taking opposing positions before the market has clearly established a bottom. Specifically, investors often employ a “pyramiding” or “tiered accumulation” strategy, gradually increasing their purchase volume as the stock price declines, thereby reducing their average cost basis. For example, initially buying a certain number of shares, if the price continues to fall, the investor increases the purchase volume at a lower price, and so on.

Advantages:

• Reduce Cost Basis: By purchasing in batches during a downtrend, the average cost per share is reduced, creating conditions for future profits.
• Early Positioning: Establishing positions before the market reverses can yield larger gains when the market rebounds.

Disadvantages:

• High Risk: If the stock price continues to fall, it could lead to greater losses.
• Capital Tie-Up: Requires sufficient capital to support continued covering and may face situations where funds are long-term locked up.

Compared to “long-side trading,” which involves buying after the market trend is clear and there are signs of a price rebound, the short-side strategy carries lower risk but may miss out on some initial gains during a rally. Therefore, investors should choose a suitable trading strategy based on their risk tolerance, financial situation, and market judgment.

Valuation Theory

Valuation theory is a core concept in finance that aims to assess the intrinsic value of assets or companies, providing a basis for investment decisions. Through valuation, investors can determine whether the current market price of an asset is reasonable and develop appropriate investment strategies accordingly.

Key Valuation Methods:

1. Discounted Cash Flow (DCF) Method: This method is based on the cash flows expected to be generated by an asset over its future period and discounts these cash flows to their present value using an appropriate discount rate. The DCF method emphasizes intrinsic value and is suitable for evaluating companies with stable and predictable earnings.

2. Relative Valuation Method: This method assesses a company’s relative value by comparing it to other companies in the same industry based on valuation metrics such as Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Price-to-Sales (P/S) ratio. The relative valuation method is straightforward and widely used for quick assessments and industry comparisons.

3. Asset-Based Method: This method determines a company’s value by evaluating its net asset value – the total assets minus liabilities. The asset-based method is suitable for asset-oriented companies, such as real estate firms or capital-intensive businesses.

Applications of Valuation Theory:

• Investment Decisions: Through valuation, investors can identify undervalued or overvalued assets and develop buy or sell strategies.
• Corporate Mergers & Acquisitions (M&A): In M&A transactions, valuation is key to determining the transaction price and influences the success or failure of the deal.
• Financial Reporting: Companies need to assess the fair value of their assets and liabilities to ensure the accuracy and transparency of financial statements.

It’s important to note that valuation results are influenced by various factors, including market conditions, company operations, and macroeconomic indicators. Therefore, when conducting a valuation, it is necessary to consider these factors in combination with both qualitative and quantitative analysis to achieve more accurate assessments.