Kan Gu: Dollar-cost averaging is a good strategy to deal with "black swan" events

How can a dollar-cost averaging strategy help investors avoid emotional decision-making?

“Black swan” events put short-term pressure on the stock market, leading to widespread adjustments in individual stocks. Black swan events in the capital markets are difficult to predict, and the best response strategy is to adopt a dollar-cost averaging trading strategy. Whether for individual stocks or ETFs, using a monthly dollar-cost averaging model can significantly enhance the margin of safety.

The core advantage of dollar-cost averaging lies in removing the dependence on market timing. When a black swan event occurs, market sentiment can easily fall into panic, causing investors to sell out of fear of further price declines or to blindly increase their positions in a desperate attempt to buy the dip—both behaviors can lead to poor decision-making. Dollar-cost averaging involves consistently investing a fixed amount at regular intervals, unaffected by short-term market sentiment, and can be executed as scheduled. This model averages the cost basis, automatically accumulates more shares during market downturns, and reduces the proportion of high-cost holdings. Once market sentiment stabilizes and valuations return to rationality, the cost advantage will translate into profit potential.

Choosing to dollar-cost average with ETFs can further diversify risk. Individual stocks are more susceptible to the dual shocks of black swan events and negative news, resulting in greater volatility. ETF funds cover multiple industries and sectors, which can hedge against extreme risks in a single industry or company, avoiding significant account value drawdowns due to the collapse of individual stocks. Additionally, a continuous dollar-cost averaging rhythm can prevent full exposure to extreme risks in a single investment.

Dollar-cost averaging is not a mechanical operation; it also requires basic risk control and selection of targets. First, the range of ETF constituent stocks chosen by investors should have long-term fundamental support, avoiding funds that do not represent solid fundamentals, ensuring that most constituent stocks have a basis for valuation recovery after a black swan event. Second, investors should reserve emergency funds to avoid being forced to sell at low prices due to short-term cash needs, which could result in actual losses. Lastly, a simple rebalancing mechanism can be set up, where the investment amount is reduced or paused when market valuations are at historical highs, and resumed once valuations return to reasonable ranges, thereby avoiding profit erosion.

From a long-term investment perspective, the impact of black swan events is mostly short-lived. The core driving force of the market still comes from the economic fundamentals and the profit growth of listed companies, and short-term shocks are unlikely to change long-term trends. Dollar-cost averaging extends the investment horizon, allowing funds to fully benefit from economic growth and enhanced corporate profits while avoiding the disruption of short-term volatility on investment decisions. For ordinary investors, dollar-cost averaging does not require complex professional analytical skills, has a low operational threshold, and can achieve stable long-term investment goals, making it a practical strategy for dealing with black swan events.

Moreover, investors may prioritize choosing the CSI 300 Index Fund when selecting ETFs. Based on past experience, large funds are more likely to choose the CSI 300 Index Fund when increasing their holdings, and these 300 constituent stocks also represent the highest quality companies in the A-share market. By dollar-cost averaging into the CSI 300 Index Fund, investors can achieve an expected return that exceeds the average level.

Black swan events in the capital markets are unavoidable; investors should focus on the trading aspects they can control. Abandon the obsession with timing and switch to continuous dollar-cost averaging, paired with ETFs, to avoid emotional trading mistakes and accumulate shares during market adjustments. In the long run, dollar-cost averaging, with its strong discipline, becomes an effective trading strategy to respond to black swan events and achieve value investment goals.

Beijing Business Daily Commentator Zhou Kejing