CSI 300 Index Valuation Anchor and Its Relationship with GDP Growth Rate

After running a long-term Hushen 300 buy-and-hold strategy for over a year, I experienced significant drawdowns and volatility. Although I know the index will eventually recover, large setbacks still make me uncertain and worried that “this time is different.”
Then I started thinking about what constitutes a reasonable price for the Hushen 300 index. I asked AI to analyze the index’s annual price changes from its launch in 2005 to now, including the amplitude of fluctuations, and whether the volatility has generally stayed below 20%. I also had it calculate the CAGR from 2005 to the end of each year, as well as the CAGR assuming investment started at the beginning of each year up to now.
Since my strategy is to set the position on January 1st each year and then not adjust it—only changing the strike price—I found that from 2005 onward, the CAGR by the end of each year has generally been positive and quite substantial. However, if I started investing at the beginning of certain years, luck didn’t seem to favor me; in many years, the CAGR up to now has been below 3%, which feels quite low. The reason is simple: the index was high at those times. So, what exactly is considered “high”?

Because the Hushen 300 mainly includes China’s largest listed companies—arguably even without the “listed” part—their normal growth should roughly match GDP growth (assuming GDP is the average societal growth). Interestingly, I found that starting from early 2005, the year-end index levels, when calculated based on GDP growth, closely supported the actual year-end levels. When the year-end levels exceeded my valuation anchor by more than 20% (or over 15% in recent years), investing at the start of the next year generally resulted in poor annualized returns.

This becomes even clearer when visualized in a chart.

Therefore, I think the strategy for setting positions at year-end can be simplified as follows:

1. When observing the deviation of the year-end closing price from the valuation anchor, if it exceeds 15%, be cautious—reduce equity exposure or hold off on investing until it reverts.
2. During mid-year, if black swan or gray rhino events occur, don’t panic; markets will eventually revert. Manage margin carefully.
3. Also, note that in recent years, the deviation of the closing price from the valuation anchor has been increasing, sometimes falling nearly 20% below it. When the price significantly exceeds the valuation anchor, be patient—wait for reversion before buying, and avoid over-committing initially.
4. Currently, from a long-term perspective, the year-end levels are considered, but it’s also important to observe the relative starting point each year. The amplitude of fluctuation is likely to exceed 20%, so at the beginning of each year, prepare for the possibility of a sharp decline exceeding 20%.

These are my personal analyses and summaries, serving as safety measures for future strategy execution. Whether facing big drops or surges, I need to know what actions to take, rather than panicking during declines or being overly optimistic during rises.

I hope to stick with this long-term approach. Let’s motivate each other!