One of my valuation systems: Valuation is not a method

I have seen many valuation methods and various calculation models. I have always disliked those valuation models that seem to be very complicated and accurate. The more accurate something is, once a mistake is made, the harm of the mistake will also be reduced. will be bigger.

When researching a company or a stock, the primary object for me has never been indicators such as ROE, PE, and PB, nor will I first find its historical valuation, etc. as a standard to judge the current valuation.

To buy a stock is to buy a company. In front of us is a living company, not a collection of data. This is where the meat eaters are. Many people know the processing of various data well, but they always forget that a company is flesh and blood. To deduce data based on data, this only requires one program, how can investing be so simple!

The most fundamental premise of valuation is the operation of the enterprise, and the core of the operation is the product. All valuations must first consider the product life cycle and future trends. The relationship between operation and valuation is like a foundation and a building. No matter how spectacular the majestic buildings you see, if there is a problem with the foundation, it may collapse at any time.

Many people enter the stock market and always want to find some formulas or secrets, thinking that after learning the valuation method, they can see a stock clearly. This kind of secret is like a castle in the air. If it is separated from the business operation, its essence is no different from reading the K-line chart for technical analysis. It is just like using a computer to fortune-telling.

Valuation is not an indicator or a formula, it is a system and can only be a system!

The conclusions presented by this system are simple enough that even elementary school students can understand them. Even those seemingly complicated free cash flow discount formulas are much simpler than the exam questions for middle school students today. But these seemingly simple things have buried the investment dreams of doctors and professors? The grandfather-level Newton also lost his salary for ten years in the stock market. He had to sigh with emotion, “I can calculate the trajectory of the celestial bodies, but I can’t calculate the madness of people.”

Newton’s sigh, in fact, brought out a fundamental problem, that is, investment is not a science, it does not have a relatively constant trajectory like the movement of celestial bodies, and some are people’s hearts that are changing all the time. Not only investment, but on a larger scale, economics itself is not the kind of science that can be replicated.

All valuations are relative, and they are looking for the balance at that moment in the process of change, and through this balance, the possibility of subsequent changes is judged. The reason why it is so complicated is that the data itself can be calculated perfectly, but products and operations are always full of uncertainty, and what is even more uncertain is competition, regulation, technological iteration, and even the change of people’s hearts.

In business, there are TO B and TO C, but from a fundamental logic point of view, all TO Bs are essentially TO Cs. Demand changes consumption, and consumption changes production. The essence of long-term valuation is the certainty in this process of change.

Why long-term valuation? Because short-term valuation belongs to funds and emotions, this is something that even the stock market can’t see clearly, and we can’t really understand it from the perspective of investment, which belongs more to the category of psychology and law. Just like a few years ago, some people predicted that Kweichow Moutai would reach a market value of 2 trillion, and it came true, but this market value was not calculated by those bigwigs using free cash flow, but by a price-earnings ratio of 70 times. , are you right or wrong?

Of course, short-term valuation is also based on long-term valuation. Behind short-term valuation is the monetary environment and regulatory environment, and behind long-term valuation is the mutual adaptation of products and demands. Short-term valuations always fluctuate around long-term valuations, and the relationship between them is value.

In value investing, valuation is one of the core factors, but the real valuation cannot be covered by a few data. It comes from investors’ long-term understanding of the economic environment, the capital environment, the market, the industry, and the company. And valuations are inherently dynamic, subject to constant disruptions from economic cycles, monetary conditions, market sentiment and profit-seeking needs.

Many times, we cannot give a clear long-term data standard for a certain stock, and can only find the next coordinate in each data, so long-term holding is just an accumulated result, not the one that can be seen at a glance. A legend after ten years. It’s like the reef marks on a chart, avoid them and the navigator is not far from safety. (Unfinished, to be continued) @Today’s topic

At 20:00 on May 31 (Tuesday), I will broadcast live on the video account and continue to explain the last 10 principles of ” 20 Trading Principles on the Basis of Value Investing “. At the same time, I will talk about the understanding of the current market. Welcome everyone to join us. interactive learning

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