Ben San has been engaged in consumer electronics for nearly 20 years, which is similar to the time when the stock market lost money. During this period, I experienced several cycles of mobile phone consumer electronics, directing stockpiling, production, order cutting, and inventory sales. The amount is not too big, and the loss is not bad. Today, the blood and tears of many losses are turned into bits and pieces of words, which is called “Introduction to Cyclical Investment”.
why the cycle
The laws of the market are caused by the most basic supply and demand curve in economics. There is an imaginary supply and demand balance between supply and demand in classical economics, while in actual economic activities, human factors (fear and greed) will exacerbate the supply and demand curve, resulting in imbalances, resulting in cycles.
Is the cycle universal?
Since the market economy is the mainstream economic form in the world, periodicity is universal, that is, “everything is a cycle”. But still back to the most basic supply and demand curve, in classical economics, there are mandatory and optional demand, substitute demand and complementary demand. At the same time, there are multiple supply and single supply. Therefore, different products are affected The degree of periodic influence is different, and can be roughly divided into strong periods and weak periods. Regarding economics, interested readers can read Professor Mankiw’s “Principles of Economics”, which will not be repeated here.
The guiding significance of cycle to investment
Now that it is clear that cyclicality is universal, the guiding significance for investment is also obvious.
Weak cycle : Typically, certain consumer goods, such as branded liquor, are limited in supply, and demand expands slowly, so long-term investment is possible;
Strong cycle : There are two types. One is constant demand and sufficient supply. The best time to invest in this type of investment is to invest at the end of the downturn and exit at the end of the upswing, half a beat ahead of the market. Most of these stocks’ movements are typical cyclical trends with poor growth. Of course, there are also special cases, such as Muyuan shares in the pig cycle, which will not be expanded here. The other type is that the demand is expanding and the supply is sufficient. The best time for this type of investment is still the same as before, but if it is a long-term fund, long-term investment is also feasible. For example, in the semiconductor industry such as chips, the Philadelphia Semiconductor Index has been rising in volatility over the past few decades.
Practical analysis of cycle in investment
The basic concepts are clarified, and the following is an example analysis. Taking chip semiconductors as an example, they belong to a strong cyclical sector, and cyclical fluctuations have historically taken four years as a cycle. The specific cycle is: out of stock – price increase – stockpiling – expansion – oversupply – order cutting – price reduction – until a new round of out of stock. From the perspective of the cycle law, the current semiconductor downward cycle starts at the end of 21 and is expected to last until the end of 23. Looking at the pig cycle, it started to go down in early 2021 and is expected to go up by the end of this year.
From the perspective of stock price trends, generally speaking, in the first year of the downturn, the stock price has the largest decline, and in the second year, the decline begins to narrow, and the stock price trend is obviously passivated. The reason is also very simple, because in the first year of the downturn, the industry will be full of negative information such as price cuts, inventory, and order cutting. After media publicity and emotional factors are added, the market will often overcorrect. In the second year of the downturn, the inventory level gradually decreased, the market was gradually desensitized to negative information, and the valuation was relatively low. Is the timing of the deal clear?
Let’s look at a more specific example, the mobile phone track in consumer electronics. From the perspective of MTK, 30% to 35% of the orders will continue to be cut until the end of the year, which means that the inventory on the mobile phone will continue to be eliminated until the end of the year. From the data disclosed by Zhongying Electronics, let’s do a simple mathematical calculation and cross-validation. The expectation given by Q3 customers of the mobile phone lithium battery management chip last year was a growth rate of 100%, but the actual growth rate this year is 50%. Assuming that the monthly output last year was 1, the monthly output this year is expected to be 2, but it is actually 1.5, and the order cut is (2-1.5)/2=25%. Note that MTK has a high market share in the mobile terminal, while Zhongying has a market share of 10% in the mobile terminal last year. Therefore, Zhongying has new customers and new products put into production this year, and the increase in the market share of new orders offset part of the order cut rate. This conversion, the original order cut rate should be similar to the MTK data, more than 30%. Secondly, the actual market demand for mobile phones has fallen by 10% since the beginning of this year, and the current channel inventory is about two months. Assuming that at the end of last year, the mobile phone manufacturer predicted that the monthly demand for this year was 1, the actual output is 0.7/month, the mobile phone sales is 0.9/month, the inventory is 2, and the target inventory is 1. Dynamically balanced, it is a standing safety stock. How many months will it take for demand to reach equilibrium? Solution: 2+0.7*X-0.9*X=1, get X=5. Therefore, assuming that the market does not further decline and the output ratio remains unchanged, the mobile phone market will reach a balance between supply and demand after 5 months, that is, there is a high probability that it will be realized in January next year. How to deduce later, still assuming that the sales on the market side is 0.9/month, then the production side will be adjusted from 0.7/month to 0.9/month, a year-on-year increase of 28.57%. If the market side recovers to 1/month, the growth rate will be +42.85 year-on-year. %. Of course, this calculation is based on the overall growth rate and balance of the market. Specifically, the lithium battery management chip of Zhongying Electronics will only double at this speed due to the superimposed market share increase factor.
Through the above simple mathematical calculation, it is verified that the periodic model is roughly established. That is, the first year of the downward cycle will be on the cusp, and the second year of the downward cycle will gradually stabilize and gradually shift to the upward cycle at the end of the second year. The share price of consumer electronics on the mobile phone side will generally operate in accordance with the cyclical law. Note that this is an overview, and specific analysis is required for individual companies.
Alright, let’s talk about it today. The baby got up and went to tutor her homework. See you next time!
$Zhongying Electronics(SZ300327)$ $Will Shares(SH603501)$ $Zhaoyi Innovation(SH603986)$
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