In an era where "holding onto stocks" is more challenging than "enduring widowhood," value investing is destined to become an alternative approach.In the A-share market,value investing has not been without its heyday,but with the collapse of the 2008 bull market,the investment philosophy of "letting time work for you and enjoying the wealth myth created by compound interest" inevitably shattered.However,there are still some staunch adherents of value investing who are conducting related research and reflection.In their view,"value investing" is not simply equivalent to investing based on a company's value,blue-chip or "white horse" stocks,nor is it simply equivalent to investing in low price-to-earnings ratio (P/E) or low price-to-book ratio (P/B) stocks.
I.Ignoring Cyclicality - There Are No Non-cyclical Industries,Only Weakly Cyclical Industries
Because economic operations are cyclical,all industries are cyclical.It's just a matter of the length of the cycle.The prosperity cycle of an industry may last for ten years or even longer,but when the time span is long,many people believe there is no cycle.
Is banking cyclical?Yes,it is divided into two cycles.One is the economic cycle,which inevitably leads to the emergence of a wave of bad debts,it's just a matter of how much; the other is the monetary policy cycle (which is actually the counter-cyclical regulation of the economic cycle),which will definitely cause changes in the interest rate spread,thereby affecting profits.
Is consumption cyclical?Yes,but it is relatively weak.I have mentioned this in previous writings.During economic crises in developed countries like Europe and America,the business of restaurants noticeably deteriorates - because people tighten their wallets and choose the more economical method of eating at home.Another real-life example (news),during the subprime mortgage crisis,some people in the United States lived in villas but could not afford the electricity bill,got their power cut off,and had to buy candles,leading to a local shortage of candles.
Due to severe economic crises,unemployment rates soar,and people's expectations of uncertainty about the future lead to a reduction in immediate consumption.Therefore,consumer stocks are also cyclical,just relatively weak.
There is no industry without a cycle,it's just that - it may be a long cycle or a weak cycle.
II.Not Analyzing the Industry and Simply Holding onto Individual Stocks - Analyzing individual stocks without considering the overall state of the industry is a major investment taboo.
It's a simple truth that the probability of picking good students in a top class is much higher than in an average class.Although in some industries with oversupply,excellent companies can gain more market share by eliminating competitors - due to the large supply of market products,the profit margin must be low.
Because of a particular fondness for a company's leadership management ability,cost control ability,proximity to raw material production areas,and other competitive advantages,one may become obsessively optimistic but forget the simplest economic principle that supply and demand determine price.Even when the entire industry is continuously deteriorating,one still holds on,hoping to survive a cycle (with some competitors dying off,leading to a reduction in supply and a recovery in industry prosperity).If this cycle can rebound,that's fine,but if it's the twilight of the life cycle,then there will be no chance to turn things around.
In theory,in a situation where resource allocation is completely efficient (with no access barriers) and information is completely symmetric,the return on investment in all industries is equal.Therefore,when studying an industry,one should consider what the entry barriers of the industry are and whether they can keep other investors out.
Note: The need for a large amount of capital in an industry does not constitute an entry barrier to the industry—because of the invention of the corporate form of joint-stock companies,and some large companies like "diversification" across borders.
III.Focusing only on the short term,not the long term—ignoring the life cycle of the industry
Every industry has its own life cycle.
Thirty years ago,perhaps bicycle manufacturing factories were still at their peak.
More than ten years ago,in the era when most people did not have mobile phones,China Mobile might have been a growth stock; now,it has entered the cash cow phase—it may generate a lot of profit,but profit growth is very weak.If one only sees the strong profitability of today but mistakenly classifies it as a growth stock,it is likely to buy at an excessively high price.
Value investment (speculation) is most frequently exposed to three types of stocks: growth stocks,cash cows (bond-like),and value reversal (grasping the cyclical turning point),with growth stocks paying special attention to the life cycle of the industry.If one does not understand the life cycle or industry cycle,and misjudges,classifying the stock into the wrong category,the failure will be disastrous.
Due to the longer span of the life cycle,which may be decades,and the fact that this involves more macroeconomic knowledge,it is often overlooked.When we buy a certain stock,we might as well ask ourselves,how big will the market demand be in the next three years,ten years?IV.Focusing Solely on Supply or Demand—Price is Determined by Both Supply and Demand
When analyzing a particular industry or a company,it is common to observe a robust demand in the market,but sometimes we overlook the fact that the number of suppliers may be growing even faster.If the rate of supply growth exceeds that of demand,it can lead to an inflection point in the supply-demand dynamics.
This brings us back to the previous issue: in an era where capital seeks profit,if the increase in suppliers cannot keep up with demand over the long term,there must be a barrier that prevents would-be investors from entering the market.Find it!
V.Valuing a Stock Based on Its Holdings—Forgetting the Root of Stock Value
Some investors often make the following analysis: Company A holds a market value of 10 billion in companies B and C,while the market value of Company A itself is only 10 billion,which seems like getting the rest of its business for free...
First and foremost,it is essential to determine whether Company A will benefit from selling its equity in companies B and C.
If Company A does not intend to sell B and C,then the market value of B and C has no impact on Company A.The operational performance of B and C has already been included in the financial statements of Company A for accounting purposes.This is merely a "bias" from Mr.Market,and such bias can also change at any time.Who knows,in the next few months,the market value of B and C might drop to 5 billion,while the market value of A could become 7 billion during the same period?
If Company A does plan to sell B and C,remember to deduct the 25% corporate income tax from the proceeds.However,such a short-sighted approach is not a sustainable strategy.
Another common misconception is that a company's cash per share exceeds its stock price.Remember,the textbooks by the masters refer to net cash per share,which is after deducting liabilities.And if a company is indeed in poor shape,and you cannot liquidate it after purchasing it,the cash on the books may also gradually be eroded away.
In fact,many companies have a market value lower than the market value of the publicly traded companies they hold,often due to losses in their core business.Six,is a low PB worth buying?— If an asset can never generate returns,then the value of this asset = 0.
Many people like to account for the assets of a company one by one to value the company.
In fact,the requirement of investment is return.If the asset cannot generate returns,then even a low PB is useless.And usually,the PB of a company is also related to the depreciation method,which can lead to distortion of PB.
Another possibility is that a certain product is replaced by a substitute,such as cathode-ray tube televisions being replaced by flat-panel TVs.Then,when these production materials are scrapped,the asset price will quickly return to 0.(The demolition cost of scrapping may even be greater than the income from selling scrap iron)
In fact,it is generally believed that the PB of financial institutions is more reliable because the corresponding assets (bonds) mostly exist in the form of currency symbols.But at the same time,attention should be paid to the potential bad debts hidden in it.
So I always think that the ability to control the quality of assets is the most important ability of a bank.This ability is composed of many factors.I think that based on the judgment of the economic prospects of various industries,compared with the analysis of the economic strength of individual loan customers,it can more effectively control non-performing assets.
Seven,when everyone else abandons,should I take it?— If everyone thinks it's shit,then it might just be shit.
There is a saying,"When everyone is fearful,I am greedy; when everyone is greedy,I am fearful." It should be familiar,right?
This is a saying about market sentiment (the overall market),but many investors apply it to the analysis of industries and individual stocks.
For some investors who like to pick up bargains,or are "brave" enough to catch the knife,here is a word: Sometimes,if everyone thinks it's shit,then it might just be shit.Gold is scarce.This requires investors to have extraordinary vision and a cool head.
Eight,the biggest enemy of monopoly?— Not all monopolistic industries are suitable for investment.
As mentioned earlier,the ability to keep competitors out was analyzed.At the sight of this point,many investors immediately think of the word "monopoly." It seems that seeing "resource monopoly" and "consumer market monopoly," their eyes light up.
For some monopolistic industries,it is not suitable to invest,such as industries with "price limits." These industries are often closely related to the level of prices.When inflation comes,they face tremendous pressure from rising costs,but they cannot autonomously increase the selling price and cannot pass the pressure downstream.Examples include refined oil processing,electricity charges,highway tolls,and some public utility charges.
Under the price suppression model,monopolists cannot raise prices by reducing production (supply and demand relationship),and the profit curve is to some extent distorted.Theoretically,the more products produced without incurring losses,the greater the profit.Therefore,to a certain extent,the supply of products is increased.In this case,the demand for upstream raw materials will also increase,which will raise the price level of upstream raw materials and also to some extent compress the profit space.
Under the price limit model,whether a monopoly can obtain excess profits is worth considering.
Another type of monopoly,although it is not subject to price limits itself,cannot achieve the ability to obtain excess profits due to the limited profitability of downstream enterprises (downstream enterprises cannot raise prices,and the price transmission mechanism is not smooth).
In summary,be careful with things related to inflation,and be careful with necessities closely related to people's lives.Do you still remember the "paradox of plenty" in economics?
Nine,try not to contact companies involved in capital operations — the possibility of false performance is also greater.
If a company is not doing its own industry well but is keen on capital operations,try to avoid it.Capital operations are always complicated,and ordinary people simply cannot understand them.The listed company itself may also be a piece in its capital operations.Of course,unless you think he is willing to share the soup with you.Additionally,I personally do not favor companies that are diversified without any synergistic effects between their various divisions,as they are more cumbersome to research.When the division you are optimistic about achieves a breakthrough in profitability,another division may be dragging it down,making it difficult to quantify and compare between the different elements.
Related party transactions are an area that deserves attention.
Ten,Behind the Stars - Perhaps a Golden Exterior,but Rotten Core Inside
There are excellent companies in every industry,but the issue is that you must understand how they excel.
If a company's financial performance in certain areas is exceptionally better than its competitors,to the point of being unbelievable,and yet there is no discernible reason,it is best to avoid it.
Profit margins,levels of administrative and marketing expenses,and turnover rates are all aspects worth investigating.
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