I promised you the summary and outlook of the public version before, and post it.
The 2022 annual report is still divided into two parts: review and outlook. In fact, for investors who have experienced the entire year of this year, I believe there is not much to say, because everyone chose to stay under another major impact, and they should have a full understanding and trust in us. In addition, this year we not only have quarterly reports and semi-annual reports, but also sent you several occasional letters, basically expressing our views and ideas very clearly. It is recommended that new customers who have not read it take a look at the regular and irregular reports of this year and even previous years. I believe it will increase a lot of understanding of us.
2022 will be a very turbulent and even tormenting year. Although there have been bad years in the past, such as 2009 and 2018, the difference is that everyone has suffered a lot outside of the stock market this year. Especially in first- and second-tier cities, since the beginning of the year, there has been silence from time to time, queuing up for nucleic acid every day, and various travel restrictions have magnified everyone’s pessimism about the economy and the stock market to the limit. This is also human nature. In the stock market, unlike in 2018, A-shares began to fall from January and fell almost until December, only rebounding in the last month. Although the overall decline was slightly less than in 2018, the duration was almost doubled. This year, everyone and we have endured a huge test. Relatively speaking, we have also begun to usher in the harvest slowly. The stock market is different from others in that those who believe in value pay the price and gain.
1. Review:
Performance comparison slightly. In terms of individual stocks, 3,833 stocks have fallen this year, and 2,366 stocks have fallen by more than 20%, and only less than 25% have risen, and one-third of them are new stocks. This year is not without tragedy.
This year we still mainly invest in A shares, with a small position in Hong Kong stocks. This year is a very special year in the history of A shares in the past few decades. In particular, macro factors dominate the whole year, or the macro kidnaps the micro , making it unlikely that the micro logic will be realized within the year. Although we expected this, we did not expect it to last throughout the year. In the past, even in 2018, it only dominated for half a year. Perhaps, in the future, we will all enter a new period of history .
(one)
In last year’s annual report, we mentioned that there are two prerequisites for doing well this year: 1. How strong the domestic easing policy will be. 2. Whether the epidemic situation will start to stabilize, and whether restrictions in various aspects will be relatively relaxed. If these two premises are negative, then this year will be very difficult. In reality, our understanding is very accurate. These two prerequisites did not happen. It only happened in the last month when the epidemic was lifted. So it is basically difficult to have a safe chance throughout the year. There are only two “opportunities” to get out of the fire, or what Buffett calls a chance to walk through the powder keg with a torch.
The first opportunity is energy and upstream resources. For example, coal, in fact, has reached the top of the cycle in 2021 due to the superimposition of the overseas macro cycle and the prosperity of the domestic manufacturing and export industries. A coal and chemical stock we held in 2021 has risen more than six times in a year. Of course, we sold it when we felt that the valuation was already overvalued when it tripled. Two factors have contributed to the continuation and even intensification of the coal cycle at the top this year. One is the war between Russia and Ukraine, and the other is the increasingly strict control of the domestic epidemic situation. Both of these factors may change drastically at any time, and you see whether one of these two factors has reversed by the end of the year. A-share investors are still very lucky, holding a torch and walking through the gunpowder magazine safely. But this does not prevent us from knowing that these people are fools.
The second opportunity to get out of the fire is Zhonggai. Until now, we can still see that the suppression of the United States has become a foregone conclusion, and even a trend in the medium term in the future. For an industry that has the risk of complete delisting, and most of the companies have no cash flow, and the valuation depends on burning money in the primary market, it is problematic to buy at any time. Some people say that they can delist and return to Hong Kong stocks, so how much price should they withdraw? Are there any restrictions and protection measures for Hong Kong stocks in this regard? No. If you are really optimistic about some leaders, you can buy them directly in Hong Kong stocks. Although the valuation is still not easy, at least there is no risk of complete destruction .
There is another opportunity that is not as serious as picking chestnuts out of the fire, but it is also a risky opportunity-consumer stocks in Hong Kong stocks. In the past, the valuation of consumer stocks in Hong Kong stocks has always been no lower than that of A shares. Institutions have performed the grouping to the extreme. In the short term, you can see sharp rises and falls, and the waiting time may be particularly long. So either we are like us, carrying high volatility when the valuation is very low, or we are looking for trading opportunities like those trading players. It is easy to make money by trading, but also lose money because of trading. We have seen too many cases in the past. In the past few years, I have paid attention to several products that have outperformed the index like us. Just looking at the past curves are particularly smooth, and the annualization is also good. The difference from us is that they are all trading players with a low turnover rate. There are also more than ten times, and there are dozens of times more. As expected, basically this year is completely dead. This confirms what I said to everyone before, the reason why I don’t believe in trading is that it is easy to fail in the long run, and it suddenly fails, and you can’t even find the reason, so there is no way to improve. That shows that there was a problem with the basis of belief at the beginning .
The last opportunity is to avoid limited industries and sectors-including state-owned enterprise stocks, bonds, and precious metals industries with high dividend yields at the top of the cycle. The top of the cycle can refer to coal, so there is no need to repeat it. State-owned enterprise stocks with high dividend yields experienced a return of value this year, mainly because of the need for hedging. The long-term odds of these companies have been low, and the demand for hedging in the market will increase in stages. This is similar to a cash position for us. We will choose other companies with high odds and good probability when there are other companies, not like traders. Jumping around the same way. Bonds include convertible bonds and real estate bonds, which can only be determined after the fact. If we relax the epidemic control in the first and second quarters, maybe these will not rise but fall, so these are not our choices. We choose to believe that life will slowly return to a relatively normal state, and industry leaders who can have great value under normal circumstances.
(two)
As in the past, we continue to seek solid opportunities and build portfolios with the highest mathematical expectations based on our trust in humanity and common sense (including value).
In the quarterly report, we told everyone that the control of the epidemic has directly affected the basis of the existence of a commercial society-exchange and circulation. People and people, things and things, all come into contact with each other to generate business. So this situation is not sustainable. So, when will it be changed or stopped, this depends on how big the cost is. It also depends on how virulent the virus is reduced. Those who have been paying attention to our investor exchange letter should have heard us read it many times. Under this premise, while others look at the short term, we look at the long term. Enterprises in the consumer and pharmaceutical industries that have long-term absolute competitiveness have good prices in the short term. This is the good asset we want.
This year, from the Shanghai epidemic to Pompeo’s visit to Taiwan to the series of events that took place in September and October, the panic has reached its peak. When everyone is most panicked, we propose to have bottom-line thinking . In the quarterly report, we wrote – “Every wave of bottom is similar to the end of the world, and every round of crisis is accompanied by endless rumors and endless pits, which will always make people feel that selling is reasonable Choice. Looking at it now, no matter how stupid people are, they would not sell at the end of 2008. But why did they sell? Not because of stupidity, but because of fear . Afraid of leverage liquidation, fear of customer redemption, fear of losing sight of the future, The market crash is like cult brainwashing, there will always be a reason for you to believe that the end of the world is imminent… Even if our economic growth rate is reduced to the level of Europe, Jiangsu, Zhejiang and Shanghai, the four major first-tier plus Fujian and the Pearl River Delta are still one A “developed economy” with a per capita GDP of more than US$20,000 and a population of more than 300 million
“The market is the second largest consumer market in the world, which is bigger than Japan. There will be many great opportunities in such a huge market…”
Therefore, in terms of configuration, in the first half of the year, we not only deployed absolutely competitive leaders in more than a dozen industries in the fields of big consumption and big medicine, but also made some configurations in manufacturing, agriculture, Internet, transportation and even chemical industries. The logic of agriculture We have said in the past that whether it benefits from the inflation cycle or the industry itself has its own independent development cycle. Therefore, even if the agricultural holdings have not risen this year, they have not fallen much. In the Internet field, we hold leading games and social networks, but the positions are relatively small, and the underlying positions of A shares have fallen a bit. Transportation and infrastructure actually benefit from the economic downturn, because the worse the economy is, the stronger the investor’s demand for hedging, and these hedging industries will be in a downturn after the economy recovers, because everyone will flee, so we think the long-term There are some problems with the value, and it will not configure much. The manufacturing industry is the worst-performing sector in the holdings, because the manufacturing industry we selected may have consumption attributes. Since everyone does not believe in the future, it will naturally fall. At the same time, due to upstream price increases and logistics obstruction, the performance of the manufacturing industry has deteriorated, and naturally the decline has been even greater.
(three)
Operationally, we want to keep our combinatorial expectations to the max at all times. So as in the past, regardless of the ups and downs, it is underestimated and then underestimated, and the odds are high and the odds are high. But this year there is a problem, almost all industries have the same logic in the sky – epidemic control, it is so huge, it dominates all industries . This logic is like the sun, while other logics are like the stars. When the sun comes out, the stars all disappear. If you don’t fix this, nothing else matters. So in the first half of the year, when we were scattered in more than 20 industries, we found that all industries faced the same logic.
What do colleagues do at this time, everyone is crazy about gambling and avoiding risks . The former is reflected in new energy, old energy, and upstream industries. The latter is reflected in the resources sector and bonds (convertible bonds). So you can see that when new energy is so overvalued, after a few months of decline in the market, it actually rebounded so much violently in May, abruptly pushing up the index. When the old energy is at the top of the cycle, it can still go up and attract countless funds. When we say that new energy is risky on the Internet, people think we are fools, and countless ridicules flock to us, just like the high points of every cycle in the past. Now, we see that people have started to pay for their stupidity, human nature always does , so we believe in human nature. There is always a day of losing in the game, we do not participate in the game.
We are not afraid of risks. A company without risk means that it has been fully priced by the market. The so-called staged risk is more of a panic. Good assets are friends of time . When everyone is looking at short-term risks, it is time for us to discover companies with good long-term value. Therefore, in the basic market, there are very few who can do this, and we are the only one operating under the framework of uncertainty.
When all industries have a common logic, the difference between decentralization and concentration is not that big, so in the second half of the year, we relatively put most of our positions in more than ten industries in the fields of big consumption and big medicine, including food, tourism, aviation , performing arts, retail, transportation, innovative drugs, generic drugs, biological drugs, agricultural consumer goods, etc. We believe that these industries will provide us with good returns in the future.
(Four)
For us, we always invest based on our belief in human nature and common sense . A year with such an absolute factor as this year has never happened in the past. The collapse in 2008 was due to overvaluation and the switching of development models, and the collapse in 2011-2013 was due to the collapse of small-ticket valuations. Needless to say, some consumer goods in 2018 did not encounter much logical impact. And it only lasted half a year. Perhaps, in the future, such a situation will happen again . Because our overall economic development has entered a new cycle. Regarding this part of the research, we have shared articles on Xueqiu and the company’s WeChat official account.
When the public was most desperate this year, we also made some public sharing, of course, some of them were what we had already said to investors, such as the one at the end of August. Due to our unique system and practices, we will encounter more difficulties most of the time, so we will have higher requirements for customers who hold our products. This year, everyone still supports us very much, and we are very grateful. Of course, only those who understand us can hold the product for a long time and enjoy the excess returns of the product.
This year was also an extreme stress test , and the results proved that our system still performed well under new extreme conditions that no one could have predicted. It also once again illustrates our uniqueness. Some time ago, someone asked us, saying that we seem to be going well all the time, whether we will not be able to withstand the blows. I laughed at that moment, and I believe that customers who have held our products for more than two years will also laugh. We have never been very smooth, on the contrary, we have been practicing our ideas in difficulties.
In 2019, our products were launched on April 22, and our positions were opened in May, which was perfectly established at the high point of the index that year, and we missed the magnificent stock market gains in the first quarter of that year. At that time, due to our optimism about auto parts, automobiles and other industries that have already broken the net, our products have been falling since they were established, falling to 0.8. We persisted in our philosophy despite the pressure, and still outperformed the CSI 300 by more than 20 points at the end of the year.
In 2020, when the epidemic broke out, the products that had just started to improve were short-term plummeted because many of the targets of investment had overseas business. We have not changed our shape and still adhere to the system. Underestimation tends to be underestimated, and good ones tend to be better. We continue to select good assets, and at the same time more Distributed to 30-40 industries. At the end of the year, it outperformed the CSI 300 by more than 30 points. During this period, we experienced a series of difficulties and problems such as company changes and product transfers.
At the beginning of 2021, the market only looks at big tickets and not small ones, which is so ridiculous that big is good. Moreover, due to certain events, the convertible bonds fell below 90 or even the bottom of the debt on a large scale. We bought a lot of small notes and convertible bonds that people don’t look at, because we believe in rationality and value. During the period, the CSI 300 went up, and we went down. Some customers had great doubts and encountered many doubts and opinions on the Internet. Scolding. We still do our own thing according to our system. At the end of the year, it outperformed the CSI 300 by more than 30 points.
This year, when the public is desperate, we appeal to look at the main contradiction and believe in value, and countless ridicules flood in. During the period, some customers questioned and left, just like in the past. So how to put it, our unique system determines that there are only a few who can understand and accept us. Questioning and ridicule are the norm. The biggest gain this year is that I have experienced some things and broken some obsessions. Since what I am doing is a brand new thing, it is natural to accept ten times or even a hundred times the difficulties. It is possible to leave all confusion to time and ignore those that define us with old frameworks. Accept that all is not as it should be. Therefore, I hope that customers who hold our products can read all our past investor letters and roadshow materials , and then decide whether to go with us in the future.
This year, our products have also exceeded three years. In each of the past years, we were basically in the top XX% of the market, but in the third year, we became the top XX%. Why ? I think it’s more because everyone in the industry pays too much attention to the short-term, and because of the drive of short-term interests, they do a lot of stupid things. For example, the curse of the championship in this industry, you must have used super high leverage to win the championship. Naturally, it is easy to be lost in the second year. Our results also fully confirm the strength of the system. Basically, it outperforms the index by a lot every year. Holders who buy at each time point are basically profitable if they hold it for more than a year. Not bad, but just betting on a new high for a year and then waiting for a product that’s still there for years. We still walk at our own pace. We don’t care whether there is market recognition . Investment is a marathon. The better the players are, the more the market will see our value. Hopefully we can get further ahead in the five-year period.
2. Outlook
For us, 2023 should be a continuation of 2022. There are many investment logics that will be realized in 2023, and there are many opportunities at the end of the year. In the coming year, we are optimistic about the opportunities for the overall economic recovery— consumption, some medicines, and manufacturing .
(one)
In the past few years of the epidemic, the service industry has been the most damaged, so it must also benefit the most from recovery. Now all those debates are just fantasies of short-sighted people with no cognitive depth. As I’ve said before, the service sector provides 45 percent of employment in our country, the world’s second-largest economy. Once recovered, the opportunities are vast. What we can’t grasp is the rhythm. Many people want to grasp the rhythm, but I think it is false. This year’s epidemic has severely educated everyone that the rhythm is not something you can predict. Therefore, on the basis of sufficient odds + sufficient probability, time is not important, which is what I have always said in the past . Consumption, especially the service industry in consumption, is such an industry. What we like are companies that are still working hard in the trough. Such as XXX (omitted). We basically have such excellent targets in our portfolio.
There are also excellent companies in the suppressed optional consumption. As long as the economy recovers, people’s yearning for a better life will not stop. Theoretically, the long logic of optional consumption will be a little troublesome, it is subject to the speed at which we enter the developed economies. Short-term subject to stimulus. In general consumption, many have benefited from the epidemic in the past. Although they will decline in 2022, their valuations are still relatively expensive, which will affect their space. There are many subdivided fields in consumption, which will provide many opportunities for 2023.
The logic of medicine is actually a continuation of the logic of 2022. Whether it is outpatient or surgery, it is basically subject to the epidemic, and there is room for recovery in the future. The long-term logic of medicine is also good, and the short-term suppression logic will be answered and digested. When the economic operation returns to a normal stage, industries including manufacturing and chemical industry will return to a stage that can be analyzed and predicted, and there must be some individual stocks to choose from.
(two)
After the economy really starts to recover, it may be more of a test of stock selection ability, and that will be our home field again. The key word in 2022 is gaming . Various stock funds are gaming in various markets, and the so-called hedging is also gaming. Everyone is afraid of losses, and the fundamentals of short-term companies have become chaotic due to the epidemic, and predictions are weak, so there are only groupings and games. You predict my predictions, and I predict your predictions. This kind of history has happened many times in the past. We do not participate in this kind of game, we only look at the value. So I have been telling everyone in 2022 that 2022 is the most suitable year for sowing, and we must be patient to buy good assets and withstand fluctuations.
In 2023, we may slowly welcome the harvest, and the key word in 2023 may be recovery . Different from the chaos in 2022, the fundamentals of many industries in the new year have become analyzable. Capital will start to play the game of marginal improvement again, and it will provide us with new opportunities for value-seeking. But the recovery may also be constrained by a very important factor – the strength and timing of the stimulus .
After three years of income reduction, if there is no stimulus policy, not only many problems will not be solved, but our long-term economic development may also be affected. So the probability of stimulation is inevitable. However, after experiencing 2022, everyone should be able to better understand the timing and intensity, which is not something we can predict. So this process may also be accompanied by huge fluctuations . But if the big drop is definitely a good opportunity, it will even be realized within the year.
Let me give you an example. For example, we all know the pressure on fiscal revenue. The ideal approach is to relax and wait until the economic vitality recovers, and the natural income will also increase. However, the short-term feasible approach also includes tax increases. When the market is relatively fragile, if the tax is really raised, it may cause a wave of panic. But can we say that there is no such possibility? I don’t think anyone dares to say that. Just like in 2022, it is difficult for everyone to predict many things. So we still have to look at the general direction, give up judging the rhythm, and bear the fluctuations at the same time.
(three)
We would certainly like less volatility, but as the economy enters a new phase. In the process of moving from 10,000 US dollars per capita gdp to 20,000 US dollars, the fluctuations will be more severe than in the past, and there will be more difficulties. This is reflected in the stock market. If we want to pursue excess returns, we must bear greater fluctuations . This is a need Everyone is mentally prepared. If you can’t accept it, you naturally don’t have the chance to get the excess, everything has a price, and it’s preordained to drink and peck. In the future, volatility will become even greater.
What needs to be observed in 2023 is the recovery of entrepreneurial confidence, which will affect the upper limit of economic development in the medium term. There are many things that need to be repaired at the soft level, and it cannot be completed overnight. So we still have to keep observing under the premise of bottom-line thinking . If there is a wave of adjustment and decline in U.S. stocks in 2023, there will be some targets worth considering. We don’t talk about the global macro, we just observe and respond more.
In 2022, we will have more thoughts on investment and business operations. After the quota of sub-funds is full, new products will double the threshold. We intend to leave everything to time, and time has the answer. We still hope to try our best to choose investors who understand us and trust us to walk together. As for investment, in some years those who invest in consumption stand next to us, in some years those who invest in medicine stand next to us, in some years those who invest in chemical industry stand next to us, in some years those who invest in manufacturing stand next to us…, the consumer stocks are booming At that time, we didn’t have many consumer stocks. We didn’t have pharmaceutical stocks when pharmaceutical stocks attracted the attention of the whole market. We didn’t have new energy when new energy burned the audience. We didn’t have us when every industry was the busiest. They each led the way for a while, but Looking back, the scenery is better on our side, people come and go, come and go, and we are always there .
For the future, we are actually very small as individuals. Because the participants in the capital market control large funds, they always have a lot of illusions, exaggerate their own strength, and do some stupid things. For us, it is very simple to buy and sell stocks, find good assets at good prices, and build investment portfolios. We can’t control many things. In the tide of the times, we play more of the role of observers, trying to be as rational and objective as possible. In November of this year, when everyone was very confused, we shared with you an article I wrote “How We Settle Ourselves”, which is basically some thoughts on my reading this year. The theme of the whole article is actually just five words – when things go smoothly, this is also a guide for our investment. We cannot change the times, but we can live naturally according to the law of the development of things. When the time is right and the time is right, sorrow and joy cannot enter. This just confirms the values of normality and coping. There is another sentence that I also like very much, and I will give it to everyone-Xu Qing’an, who is turbid and quiet, and Xu Sheng, who is moving. When encountering chaos, wait a moment, think quietly and observe, and there will naturally be a moment when the truth comes to light. When you can’t move, you have to accumulate strength quietly, like a plant sprouting. Although you can’t see it with your eyes, the vitality is strong enough to bring spring. In the future, if you encounter a similar moment, I hope everyone will think of this sentence.
Finally, I wish you all a happy new year and a happy family. We will continue to work together in the coming year, thank you.
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