The recent withdrawal of the account is so powerful that it is really unpleasant. But bear markets are also a good opportunity to rebalance positions. Today I would like to share with you my latest investment thoughts.
Recently I’ve been digging for some investment opportunities in distressed companies. Recently deployed some China Resources Power and COFCO Jiakang. Later, I thought about it, and more than half of the stocks I have opened since 2020 are distress reversals. Among them are CNOOC and COSCO SHIPPING Holdings purchased in the first half of 2020; ST willing to buy in the second half of 2020; and these two recently purchased. According to historical statistics, it seems that the overall return of my buying distressed stocks is not bad, but some of the white horse stocks I bought have average returns.
Dilemma reversal investment is a kind of stock investment behavior that looks good, but is actually self-aware and difficult. There are two factors that prevent such investors from achieving high returns.
One is that the company is in trouble, but it will not reverse again. If it is said that companies will not reverse, it cannot be said that this is a distressed reversal investment. This is an investor misjudgment. Therefore, the ability to judge that a company can reverse its difficulties is the basic quality of making this type of investment.
There is also the case where the business takes long enough to reverse. If you intervene too early, on the one hand, you may need to wait until the end of the day. There are other factors that lead to changes in the situation of the enterprise during the long-term waiting process. Take a look at my example here. I bought CNOOC before because of the oil price crash. It is not difficult to judge that CNOOC’s performance will reverse. But after oil prices have begun to rise sharply, CNOOC’s share price has not risen significantly because of the US sanctions. I gave up after holding CNOOC for a year and a half. But what’s interesting is that the market played a joke on me. After I sold it, CNOOC started to rise. Of course there is a big catalyst here, the EW conflict. This is not something I can foresee.
Long wait times and risk costs make the returns of distress-reversal investing less attractive.
Even though distress reversal investing has time and risk costs and ability requirements, overall, I think it is a relatively good investment choice for ordinary investors. The reasons are as follows:
The biggest advantage of this type of investment is valuation protection. At the heart of distress reversal investing is low valuations. It’s not just that a company can invest in trouble, it also needs to be cheap enough.
The other is if we can easily identify that the company’s predicament is temporary. Then, under the protection of low valuations, the certainty of such investments is much greater. Therefore, whether it is easy to judge whether a company is out of the predicament is another important factor of distressed reversal investment. The point here is that we don’t seize investment opportunities that are difficult to judge. We select investment opportunities by looking at fat and thin.
It can be used to judge whether the valuation is appropriate, and it can also be used to judge the fundamentals of the company. The principle is not to touch the bad opportunity.
With a certain ability, distress reversal investing can have considerable certainty. But we still need a little luck. This bit of luck is that the companies that may be bought are cheap enough, and there is a certainty of reversal, but the performance or stock price reversal takes a little longer. There is absolutely no way to do this, it can only be left to God.
@Today’s topic $COFCO Jiajiakang (01610)$ $China Resources Power (00836)$ $Shede Wine (SH600702)$
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