As 2026's trading year passes its halfway mark, many investors reflect on a familiar frustration: watching indices climb while their own portfolios stagnate. Following July's sharp correction, some now suspect that their annual summary will again be reduced to the bitter phrase "I was in profit, but not anymore."

This year's market has been defined by extreme divergence. In the first half, technology stocks took the spotlight, with chip semiconductors and computing power sectors surging and generating strong wealth effects. By June, a nationwide frenzy to chase optical modules had gripped the retail investor community.

At that time, I strongly advocated a "three-step strategy" to navigate the overheating risks in the tech sector. The first step was firm deleveraging; the second was trimming positions by half; and the third was adopting a dual-pronged approach—investing one hand in technology and the other in dividend-yielding assets. Investors who followed this playbook largely avoided the July slump that hit most tech shares. However, many who failed to reduce exposure in time—or who chased rallies at the peak—saw their first-half gains evaporate, and some even found themselves nursing significant losses after the downturn.

Despite the fact that several major indices remain in positive territory this year, a large number of investors have yet to see real profits, largely due to the market's bifurcated nature. Overall, 2026 remains a technology-driven bull market. In the age of AI, technological innovation is the primary investment theme. Early last year, I outlined six key sectors: chip semiconductors, computing power, humanoid robots, commercial aerospace, solid-state batteries, and innovative drugs.

These six sectors have rotated in performance throughout the year. Of course, because segments like humanoid robots and commercial aerospace have not yet entered their earnings acceleration phase, they have also experienced notable pullbacks. While making money this year has been more challenging than last, the wealth effect is better than 2025's. Investors who aligned with the right directional pairs have achieved respectable returns.

In the second half, sectors such as innovative drugs, solid-state batteries, and dividend-paying areas like banking and coal have performed well. The barbell strategy remains an effective investment framework this year—pairing tech exposure with dividend income is a robust defense against persistent market volatility. When everyone was chasing optical modules in June, the advice was to conquer greed, decisively reduce positions, and lock in gains. Now that the market has pulled back, the guidance shifts to overcoming fear and selectively buying high-quality stocks or funds that have been unjustly sold off.

In my view, the tech bull market is likely far from over. Supported by policy tailwinds and the ongoing migration of household savings into capital markets, we could be witnessing the early stages of a long-term rally. Therefore, maintaining both confidence and patience is essential.

Valuation dispersion between sectors is extreme this year. Some technology stocks are trading at significantly elevated multiples, while dividend sectors like banks remain undervalued. This polarization partly reflects investor expectations about future growth prospects. The AI revolution could trigger earnings explosions for certain companies. Take the storage supply chain, for instance—global leaders are advancing high-end products like HBM, and AI-related demand is reshaping product mixes. Domestic storage players are also gaining attention from the market.

In capital markets, investors often assign premium valuations to tech stocks with potential earnings surges. However, this inevitably breeds some bubbles. Not every tech firm will achieve high profit growth; when the market flocks to tech, localized froth is unavoidable. Going forward, tech leaders that can deliver on earnings and secure orders may hit new highs, but pure theme plays and story-driven stocks are unlikely to sustain major gains. This highlights the importance of returning to fundamental analysis and value-based investing.

Traditional sectors like banking, where profit growth may decelerate to single digits or even decline, will find it hard to justify significant multiple expansion or offer much upside imagination. This valuation chasm is unlikely to close in the short term. Over the coming period, as market style rotates and tech adjusts, dividend sectors may see valuation repair, narrowing the gap somewhat. However, if the Nasdaq hits new highs and boosts tech sentiment again, the divergence could widen once more.

Currently, the primary risk to monitor is the Nasdaq. If a bubble bursts there, it could severely impact A-share tech stocks. In such a scenario, timely and substantial position reduction would be prudent for risk avoidance. Each morning, investors should check overnight U.S. market performance: if Wall Street is healthy, it's a sunny day; if it suffers a sharp decline, consider cutting exposure quickly.

This year's tech rally has included significant speculative excess. Many AI-related stocks have soared on hype, leaving latecomers trapped at highs. Retail investors often lament heavy losses on concept stocks. For these names, rigorous fundamental research is critical—review industry reports and individual equity research to assess whether earnings growth is likely and whether valuations have become absurd. Blind speculation in theme stocks frequently leads to substantial losses. Investors must keep their eyes open and anchor themselves in fundamentals.

I have long championed Buffett-style value investing, adapted to Chinese market realities as "value investing with Chinese characteristics." This principle applies equally to tech stocks: stay grounded in fundamentals and practice discerning value investing. This is the only way to genuinely capture opportunities in this tech cycle while avoiding the traps of theme speculation and being stuck at peaks.

Most investors struggle to distinguish between value investing and mere price fluctuation. They tend to hold losing positions indefinitely, watching losses grow. This stems from the anchoring effect—buying cost becomes a psychological benchmark, prompting investors to cling to deteriorating positions regardless of worsening fundamentals or falling prices. The remedy is to avoid anchoring and refocus on fundamentals. If a company's outlook has deteriorated and recovery prospects are dim, it's wiser to cut losses decisively rather than let them balloon—unless future earnings growth justifies holding for a rebound.

Some investors, though still profitable, see gains shrink significantly from peak prices and refuse to sell. Even as fundamentals weaken and trends turn down, the "high-water mark" becomes a second anchor, leading them to wait for a return to previous highs. This often results in missing optimal exits, transforming profits into deep losses. Such lessons are all too common. Consequently, value investing also requires position management and discipline in taking profits and cutting losses. Every investor should set appropriate stop-profit and stop-loss levels based on their own circumstances.

With quantitative trading accounting for an ever-larger share of market activity, short-term traders are increasingly vulnerable to losses. Investors must break the habit of frequent trading, avoiding the urge to chase highs and sell lows. Instead, adopt a medium-to-long-term perspective. In A-shares, reducing transaction frequency and extending holding periods is advisable. Frequent trading, especially with quant dominance, amplifies the risk of significant losses. Returning to fundamentals and embracing medium-to-long-term investing is a superior strategy for navigating volatility and adapting to style shifts.

The root cause of many retail investors' losses is exactly this pattern of chasing and panic-selling. My advocacy for Buffett's value philosophy aims to help investors remain unswayed by market noise, allocate to quality sectors, companies, and funds, capture medium-term opportunities, and avoid the pitfalls of short-term speculation—thereby growing wealth through capital markets. This doesn't mean passive complacency; it means active research with reduced trading frequency and extended holding periods.

Finally, a crucial reminder: never use leverage under any circumstances. As Buffett warns, "Once you have leverage, time is no longer your friend but your enemy." He also famously said, "The only way smart people go broke is through leverage." This is a warning worth heeding deeply.