Writing this article is not to prove how powerful I am. Because during the continuous decline of Tencent, I also had emotional fluctuations, and the more I fell, the more afraid I was emotionally.
At the same time, although Tencent has now risen to 370, it seems that Boshi is making money, but just because it makes money does not mean that investment thinking and behavior must be correct and replicable. This is like Tencent’s continuous increase in positions but continuous loss of money during the process of falling from 300 to 200. It does not prove that investment thinking and behavior must be wrong.
The current summary, in fact, does not fully represent the real 200-300’s objective and rational thoughts on Tencent. This can only be regarded as an after-the-fact review summary. If you want to understand Boshi’s true status at that moment, you can read the articles written by Boshi during the process of Tencent’s fall from 300 to 200. These articles will be placed in the extended reading at the end of this article.
The real transaction records of Boshi are as follows:
On July 18, 2022, sell 10% of Moutai’s position. The average price of buying Tencent on that day was 320.
On September 5, 4.56 sold 7% of Postal Savings Bank’s position at 303. On September 7, the average price of buying Tencent was 303.
On October 12, sold 4.5% of the position of Tongrentang Sinopharm. The average price of buying Tencent on that day was 249.
Looking at the above three transactions alone, Boshi probably increased its position in Tencent by 21.5%, because Moutai had the largest position, and the final average price must be on the high side, which should be around 280-300. The specifics are not counted, anyway, the average price must be close to 300.
In addition, the reason why Boshi sold Moutai, Postal Savings Bank, and Tongrentang Sinopharm, and then bought Tencent, proves that Boshi no longer has enough cash to buy Tencent, and can only buy Tencent by selling other companies. Therefore, there is a high probability that Boshi previously held a certain position in Tencent. Therefore, the average price is actually higher than the previous calculation.
Why sell other positions and buy Tencent?
Since you can hold 5%-10% positions in Moutai, Postal Savings Bank, and Tongrentang Sinopharm, it is considered relatively large, and you must have done some research and are more optimistic about the expected returns of these companies.
The reason for buying Tencent and selling the three companies is to fully compare and analyze the development of Tencent, Moutai, Postal Savings Bank, and Tongrentang Sinopharm, which are below 300, in the next 3-5 years, especially to analyze the development of these companies in the next 3-5 years. After considering the freely distributable net profit scale, combined with the company’s current market value, it is believed that Tencent’s expected earnings will be higher than these companies.
Is Boshi’s value judgment accurate?
Looking back from the current point in time, Tencent’s phased returns are relatively high. But as mentioned in the previous article, high short-term returns do not mean that investment thinking and behavior are correct and can be replicated.
Boshi believes that the reason why he decisively sold the three companies at those points in time and increased his position in Tencent. The main reason is that in Boshi’s own circle of competence, within the scope of the ability to calculate the profits of these four companies in the next few years, Tencent believes that these companies, Tencent, are the most underestimated and safest compared to the scale of profits that they can judge. Marginal, correspondingly, has the highest earnings expectations for the next 1-3 years.
If you look at yourself objectively and rationally, you cannot say that your research analysis and valuation judgments are 100% in line with the real status quo of these companies. On the one hand, Boshi’s research on these enterprises is limited. On the other hand, the internal operations of these enterprises, including the external environment they face, are also undergoing changes. Boshi’s judgment can only represent the manifestation of one’s own cognitive ability at that time point, but may not necessarily represent objective facts. It is not necessarily the highest income among objective facts, but for Boshi, the certainty of income is relatively the highest. This is an operation based on one’s own ability circle and research cognition level, but there must be a certain probability gap from the real objective facts.
Summary and Reflection
To sum up the above points, first of all, Boshi must know itself objectively. During the decline of Tencent, there were indeed mood swings and negative emotions. Secondly, Boshi believes that even if the profit from selling other companies to buy Tencent is very considerable, it does not mean that it must be correct and replicable. There are also some areas that need improvement and reflection, such as whether we can reduce the purchase cost and increase the margin of safety through some other efforts.
Third, Boshi’s behavior is to evaluate the company’s profits in the next few years based on its own circle of competence. Based on the evaluation results, a value judgment is made on the market value of the company, and based on this, it is found that Tencent is more underestimated than other companies, and the probability of bringing higher returns in the next few years is relatively high. In fact, this judgment has certain subjectivity and limitations. There will be a certain gap between the restoration of objective facts and the logic of complete truth.
Fourth, from the perspective of a longer cycle such as more than ten years, Moutai has a higher probability of higher than Tencent’s expected income. However, due to Boshi’s current identity as a fund manager, it is necessary to consider the periodical fluctuations of the fund, the balance between income and long-term income, so it will choose opportunities with more certainty in expected income in 1-3 years, instead of choosing opportunities with expected income in 1-3 years The income is not obvious, but the 5-10 year income is relatively obvious. It’s like, although E Fund’s blue-chip selection, which has a high probability of holding a large amount of liquor, may have higher long-term returns, but for fund investors, the flexible allocation of Zhongtai Xingyuan with a lower short-term drawdown is a better holding experience in stages , are easier to hold.
Objectively speaking, except for Moutai, it is difficult for most other companies to analyze the profitability of 5-10 years. For most companies, the longer the time, the greater the variability.
Moutai’s certainty leads to less chance of its margin of safety, while Tencent’s complexity leads to its chance of margin of safety
Thinking backwards, Maotai’s 5-10-year certainty is also one of its greatest values and charms. For funds with a cycle of 5-10 years or even longer, if you can hold Moutai at a lower valuation, the certainty and stability of long-term returns are still very good. Looking back from the current point of time, Moutai’s higher returns have been proved by many persistent friends. Looking back from this point in time, the 5-10 year profit certainty of most companies is not as clear as Moutai. Therefore, the only disadvantage of Moutai is that because of its strong certainty, there are fewer opportunities for us to see a higher margin of safety.
On the other hand, just because Tencent’s business is more comprehensive, games, advertising, etc. are more difficult for most non-practitioners to study, but it is easy to make more emotional and irrational judgments, and there may be opportunities with a larger margin of safety.
Only by understanding a company can we grasp the opportunity
Investing is like life. Companies that are easy to understand are not likely to have good opportunities, and companies that are not easy to understand may not necessarily understand when good opportunities appear. Therefore, the key is not opportunity, because opportunities will always appear, the key is to understand a company as much as possible. The same is true in life. The key is not that there are no opportunities, but that you must be able to improve your abilities and cognition in all aspects before you can seize opportunities.
Of course, this also requires a bit of luck. At present, Tencent has risen to 370, and Boshi thinks it is luck. Because Boshi does not have the ability to figure out how much price any company can get at a specific point in the future. What I can do is to continuously improve my understanding of Tencent. If it falls to the point where I think it is cheap no matter how you look at it, I will buy it and find more funds to buy it. If it rises to the point where I see it as expensive, I’ll sell it.
Continue to raise new questions and think and research on Tencent
In fact, Boshi originally did this and thought this way. However, in the value investment class of Peking University in January 2023, Mr. Chang Jin repeatedly emphasized the importance of this item, which made Boshi pay full attention to this item again.
The key to the so-called valuation of a company at a glance is to continue research and thinking from the perspective of the company’s managers and owners. On Tencent, Boshi thinks that luck is good, and there is still a lot of research and thinking to be done.
For example, in the current environment where the Internet and mobile Internet are becoming more and more mature, and Tencent’s investment needs to be gradually withdrawn, is it possible for Tencent to find new opportunities that can truly bring large-scale profit growth to Tencent’s 100 billion profit scale? new business? Whether Tencent is looking for new businesses while continuing to invest cash, or should it properly repurchase cash to continue to increase shareholder returns. Boshi’s conclusion is to assess the situation and invest in research and development if there is a new good business. If there is a really good investment opportunity, if it can be done under the big laws and regulations and the environment, then seize the opportunity. If none of these aspects are available, practice your internal skills, and then return shareholders through buybacks.
Based on this, Boshi believes that Tencent’s management has a very good balance in these aspects.
The above content is the objective fact of Boshi’s review during the investment process. The facts and opinions in it are only for academic exchanges and do not constitute a recommendation for specific investment targets. Investment is risky, and you need to be cautious when entering the market.
$Tencent Holdings(00700)$ $Kweichow Moutai(SH600519)$ $PSBC(SH601658)$
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