In fact, I have repeatedly mentioned this issue many times in the past year, but it has not been written separately. Now I am in the stage of overcoming time, and I plan to organize some texts. Furthermore, I think the thinking on this issue is relatively mature, so I plan to finally summarize a This article will not be entangled in this issue in the future.
Now there are so-called “value investment”, “value speculation” and “trend speculation” popular in our market, and they are not pleasing to each other. But in fact, no matter what investment, our ultimate goal is to make money. I think everyone admits this. So, does the market have a unified and harmonious investment method that unifies all the ways of making money in the market? I tried to write my thoughts out today.
Let me give an answer first, for everyone to think about first, just four words “buy low and sell high”. This is easy to understand for speculators, but not for value investors. Because value investors uphold the money that companies create to create value, and this money has nothing to do with the market itself. The most typical example is that Buffett has invested in many unlisted companies. All he is eating the cash flow created by the company and paying dividends. money. I will analyze it below.
“Value investment is to buy an excellent company at a reasonable price, and then hold it for a long time until its fundamentals have fundamentally changed or the market has a better target.” This sentence should be a classic summary of value investing. Now, I don’t think any self-proclaimed value investor will deny this sentence. Let’s not talk about the subjectivity of many places in this sentence, such as what is a reasonable price, what is an excellent company, what is a fundamental change, and what is a better company. We don’t look at these subjective things, no matter how difficult it is to implement. We think this sentence is a perfect formula in an ideal state. Then if we analyze this sentence, we can probably analyze the value investment clearly and see if it eats the money of market fluctuations (buy low and sell high).
First of all, what is long-term? Will there be a business that has always existed and made money all the time? The answer is obvious, the universe will be heat dead, not to mention businesses. Every business has a lifespan. That is for sure. Then, as a value investor, no matter what purpose or logic you buy and hold, there must be only two final results, either selling, or your wealth will return to zero with the company. This is for sure.
You certainly don’t admit that your wealth will go to zero with the business, so the only result is an eventual sale. First of all, in terms of procedures, your so-called value investing method of making money is to buy at a low price a long time ago, and then sell it at a high price at some point in the future (because you have found a better target or the fundamentals have changed). So is this a gamble?
Of course, you certainly won’t admit that you are speculating, because you think you are eating the money of the company’s growth. You see, I discovered that I dug it when the company was in a downturn, and then sold it when it was about to decline. During the period, I accompanied the growth of the company and received reasonable dividends every year. This sentence is definitely correct, but there is an objective fact here, as long as you sell, there must be marketization (otherwise, how do you buy or sell?) There must be a price difference. As long as you eat this spread, it is actually speculation. Although your starting point is different, the result is the same. It’s a lot like this year’s Nobel Prize-winning paper in physics, quantum entanglement. As long as you observe one particle, you must make the other particle deterministic. Because this logic cannot be absurd, on the basis of value investment, smart Chinese have created another term called “value speculation”. Obviously, this answer is much smoother.
So, looking back at the money Buffett has invested outside the market, it is not that there is no market, it is just that this market is less liquid than the stock market, such as a piece of land, it cannot be listed, but it will not hinder its trading, as long as your price is sufficient Low, there must be no shortage of buyers.
The above is about the issue of value investment trading. Let me sum it up. In fact, it is one sentence: as long as you participate in the trading, no matter what your starting point is, what is the logic of holding during the period, but the final result is a price difference, and as long as You eat this spread, which is essentially speculation. Although you don’t admit it, that’s the result.
Then we talk about the second issue, the issue of holding time.
If there is something, it starts to create value over and over again, but it cannot be traded. That is to say, once you have it, you will accompany it in life, old age, sickness and death. You will enjoy the value growth during the period, and you cannot avoid the final value destruction. What is the result? Is the result 0? Certainly not! Because it created value during the period, or simply said that it distributed dividends during the period. Although it was destroyed in the end, at best, your principal has returned to zero, and the dividends are actually in your pocket. Therefore, here is another important law of value investing, which is the issue of holding time.
The answer is obvious, the longer you hold it for the creation period, the more profit you make. This is one of the cornerstones of value investing. We also see Buffett doing this, holding some great companies for decades.
So, here comes the second question of value investing. Yes, we all admit that the end result of a business must die, but as long as it dies later than I die, as long as I hold it for the rest of my life, then I will never sell, since there is no sale , there will be no price difference, so it is not speculative. This is why I said before that only investment bank stocks are real value investors. Those who invest in coal or real estate are actually speculative in nature.
If you do, and at a reasonable price, buy a business that will last for countless years and forever, that’s really what can be called a value investment. However, there is another issue involved here, that is, the issue of yield. For an excellent company, its short-term performance may be doubled. In a market without monopoly and full competition, over time, its average rate of return is only about 7-10%. This has been proven for a long time, so there is Munger’s sentence: Looking at it over a long period of time, the return on investment is the long-term ROE of the enterprise.
Having said that, it’s actually over. Value investing is fundamentally different from value speculation. Value investing is committed to finding companies that can continue to operate and have high ROE, and then seek to obtain permanent returns throughout their lives. But as long as you implement this method, your rate of return is doomed not to be high, the ceiling is not Buffett’s annualized 18%, but 7-10%. Buffett has an annualized return of 18% because he is also speculating on value and selling high and buying low. Otherwise, BYD will not be sold at this time. It’s time to actually create cash flow. PetroChina should not be sold either!
According to my observation of Xueqiu for so long, there are very few real value investors @laokaili is one, basically Xueqiu’s self-proclaimed value investors have not figured out what value investment is, in fact, they are basically all value Speculation Of course, they themselves do not admit it. I am an authentic speculator myself, and there is no question of despising the chain here, just an objective statement.
Therefore, returning to the question at the beginning of the article, absolute value investment does not exist, because the final result of any enterprise must be zero; but relative value investment exists, because human life is limited, which gives value investment A relatively established foundation. If there is no such point, then the so-called value investment is actually speculation in essence, but with this point, value investment is the real value investment, and its profit-making logic is fundamentally different from speculation.
But its ceiling actually exists. In the early years, Buffett relied on picking up cigarette butts to achieve an annualized rate of return of 40%-50%, which was actually value speculation. But the real practice of value investment in the later stage is not because value investment is more advanced, but because he has more money and limited energy, so he has no way to speculate. Just like my example above, his money has already reached after he bought it. He is not allowed to sell, so he can only look for companies with high cash flow in his lifetime. But now Snowball’s value investors are constantly learning from Buffett’s late-stage approach. In fact, it’s a bit different. If it sounds good, it’s arrogant, and if it sounds bad, you don’t deserve it. When you have the amount of money that you can’t get out after you go in, it’s not too late to discuss with Brother Panda and the others all over the world to find continuous cash flow.
In the past, the issue of value investing has been entangled with me for a long time. I was afraid that I would take the wrong path of investment. Until recently, I have become more and more clear about what the path I want to take and what the wrong path is. Buffett, or Xu Xiang in China, as well as the top tycoons of hot money, all take value speculation. Only when your capital has accumulated to an extremely large amount and your energy is not enough to support your continuous buying and selling, should you consider the real value investment with an annual ceiling of 7-10%. I think it is more suitable for each of us now professional shareholders. (Ordinary shareholders recommend to buy bank stocks)
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