If you only pursue a long-term annualized return of 12%–18%, one book is actually enough: "The Essentials of Investment".

I read it several times.

It doesn’t talk about emotions or chase trends; it has principles, frameworks, and case studies, with very clean logic.

You can read it for free directly on WeChat Read, with almost zero barriers.

Without exaggeration, my wife has currently accumulated a profit of 1 million, and this book has contributed at least half of that understanding.

Under normal market conditions, exceeding 4 million in three to five years is not an aggressive estimate.

This book isn’t mainstream, but anyone who has read it seriously and followed its advice has come back to thank me.

The reason is simple: it solves the problem of "how to survive long-term and make stable profits."

Below are the key points I’ve distilled.

Core Message (16 words)

Undervalued and diversified, balanced between stocks and bonds;

A rigorous system with abundant tools.

01｜The System Is a Hundred Times More Important Than Stock Picking

The book breaks down investing into three levels:

First level: Identifying systemic opportunities and systemic risks

Second level: Asset allocation and dynamic rebalancing

Third level: The use of investment tools

The importance of these three levels decreases, but most people do the opposite.

• The first level determines whether you can make money
• The second level determines whether you can make money consistently and long-term
• The third level determines how much you actually make

The core of the first level is just one sentence:

Valuation determines the risk-reward ratio.

The goal of the second level is also clear:

To ensure no single wrong judgment wipes you out.

02｜Undervaluation: The Margin of Safety Is the Prerequisite for Big Profits

The author mainly uses two metrics to assess valuation:

• Price-to-Earnings (PE): Operational value
• Price-to-Book (PB): Liquidation value

The author’s reference ranges are:

• PE: Below 10x is undervalued, above 20x is overvalued
• PB: Below 1x is undervalued, above 2x is overvalued

Strictly speaking, these numbers can’t be mechanically (industries vary greatly),

but the author’s fundamental understanding of valuation is very clear:

Investing in a company ultimately has only two ways to generate returns:

Profits from continued operations, or money returned upon liquidation.

• Think in PE terms: How much money this business make in a year
• Think in PB terms: What it’s worth in the worst-case scenario

Combined with dividend yield, you’ll roughly know:

Whether you’re buying cheap and how thick your safety cushion is.

The key to long-term success in the market isn’t how much you make in a bull market,

but how little you lose in a bear market.

Undervaluation is the prerequisite for achieving this.

03｜Diversification: Not to Make More, But to Avoid Dying

The real risk of stocks isn’t volatility,

but single-point failure.

• Deteriorating company operations
• Industries abandoned by the times
• Extreme events leading to delisting

There’s only one solution: Asset allocation + diversification.

The principles given in the book are very restrained:

• Single industry ≤ 20% of total assets
• Single stock ≤ 5% of total assets
• Allocate to bond assets and rebalance

Rebalancing isn’t about predicting the market,

but passively buying low and selling high.

Broad-based index funds are inherently excellent diversification tools.

04｜Tools: Choosing the Right Attributes Is More Important Than Choosing the Right Code

The tools introduced in the book include:

• Stocks
• Index funds (including QDII)
• Bond funds
• Convertible bonds

Each tool has a clear role:

• Stocks: High volatility, but must strictly control position size
• Index funds: Naturally diversified, suitable for long-term holding
• Bond funds: Reduce volatility, stabilize mindset, and enable rebalancing
• Convertible bonds: Theoretically "limited downside, unlimited upside," but beware of credit risk

The point isn’t to master them all,

but to understand what each tool is for and its role in the portfolio.

Final Summary

The greatest value of this book isn’t in techniques,

but in two things:

• Undervaluation: Ensuring a margin of safety
• Diversification: Avoiding fatal mistakes

Get these two things right,

and it’s not hard for an ordinary person to remain unbeatable long-term.

The rest is just patience.

Let’s encourage each other.