Philosophy Dissemination | Duan Yongping’s Four Criteria: Exploring the Boundaries of Understanding in Value Investing

In the long-term practice and research of value investing, the four criteria put forward by Duan Yongping — daring to build heavy positions, daring to hold shares long-term, staying calm amid price declines, and refraining from frequent consultations with others — are widely regarded as important benchmarks to measure the depth of investment understanding.

Nevertheless, most market participants tend to acknowledge these concepts in theory yet fail to put them into practice properly. Such divergence stems not from capability gaps, but from misplaced positioning of this framework. From a methodological perspective, these four criteria are not behavioral requirements, but natural outcomes that reflect whether investors truly understand a business.

I. Essence of the Four Criteria: External Manifestations of In-depth Understanding

Logically speaking, these four rules are not operational guidelines, but judgment tools to examine investors’ cognitive status. Being willing to take heavy positions signifies high certainty about a company’s business model and long-term value. Being able to hold investments steadily reflects solid confidence in its future development trajectory. Remaining unperturbed by price swings means a clear distinction between market price and intrinsic value. Refusing to rely on external opinions indicates the establishment of an independent cognitive system.

In essence, these four standards are resultant states. Forcing oneself to follow them without solid cognition will inevitably lead to practical deviations.

II. Common Misunderstandings in Practice

1. Mistaking heavy positioning for mere portfolio allocation

   In actual investment, the courage to build heavy positions is often simplified into a matter of position ratio adjustment. Fundamentally, heavy investment is a natural choice derived from thorough understanding, not a standalone allocation decision. Concentrating capital with insufficient cognition will only amplify uncertain risks instead of boosting investment efficiency. Position allocation should be determined by cognitive depth, not made as an independent choice.

2. Mistaking composure for mere emotional control

   Value investing holds that prices fluctuate around intrinsic value, yet price drops inevitably trigger emotional reactions among investors, which is quite common. The core lies not in eliminating emotions, but preventing them from interfering with rational judgments. A more effective approach is to refocus on value itself: regardless of holding costs, would you still choose to buy at the current price? This mindset helps separate investment decisions from emotional disturbances.

3. Mistaking independent judgment for information isolation

   Refraining from asking others for advice frequently does not mean cutting off all communication. It emphasizes that investment decisions shall not be dictated by external viewpoints. A rational way is to verify and revise personal judgments through exchanges, rather than replacing independent thinking with others’ opinions. Otherwise, a stable decision-making system can never be formed.

III. Practical Implications for Investment

It is impractical for most investors to take these four criteria as direct behavioral guidelines. The priority is to focus on upgrading personal cognition. First, identify personal cognitive boundaries and specify what remains unclear. Second, match position scales with one’s own understanding level, rather than making decisions driven by sentiment or subjective bias. Third, gradually build a stable cognitive and decision-making system through continuous research and investment reviews.

Conclusion: Return to the Core Question of True Understanding

Overall, these four criteria do not target specific behaviors, but all point to one core essence — how deeply you understand the enterprise. Sound cognition will naturally guide investors to adopt proper investment behaviors. Blindly imitating such behaviors without sufficient understanding will only heighten risks.

Therefore, in value investment practice, instead of blindly pursuing compliance with these standards, investors should reflect on a more fundamental question: have you gained sufficient certainty in judging the intrinsic value of the enterprise?