I wrote an article on stock classification a long time ago, but with the improvement of the investment system in the past few years, I have gained new experience, so the corresponding stock classification has also been changed.
Peter Lynch is the most classic in classifying stocks. Lynch divides companies into 6 types (slow growth type, stable growth type, fast growth type, cyclical type, distress reversal type, hidden asset type) , although it includes cyclical and distress reversal companies, Lynch still prefers to invest in growth stocks, so it is not suitable for conservative investors like me. And I divided stocks into four categories according to my own system. The classification not only divides the companies according to the motivation of investment, but also comprehensively considers the countermeasures when we encounter difficulties when investing. The classification is shown in the figure below:
The first category is value-defensive stocks: due to the characteristics of these stocks, many people ignore them. In fact, value-defensive stocks are the top priority in the portfolio. This kind of stock has the characteristics of low valuation and high dividend, and it belongs to the variety with protection against decline. Even if the stock price falls, its decline is much smaller than that of the index (for example, if the index falls by 10%, defensive stocks fall within 3%). I also mentioned earlier that we often encounter difficulties in investment. Either we buy stocks that are optimistic about them too early, and we have no ammunition to increase positions as the stock prices continue to fall in the later stage; or we sell stocks that are rising. After that, it continued to rise with the strength of the market in the later period. You can handle this dilemma if you have defensive stocks in your portfolio. In the first case, you can sell defensive stocks in batches and increase your position to stocks that are optimistic and have fallen a lot, that is, you can exchange the original one-fold upside ticket for three-times upside down ticket. You can imagine how pleasant it is for you to have a steady stream of ammunition to add positions as your favorite stocks plummet and no one else has ammunition. In the second case, since we sell our optimistic stocks, the potential meaning It means that the income has met our expectations or the market outlook is not optimistic and we want to settle down. But after selling, if the funds remain in the hands and the market continues to rise strongly in the later stage, then there is a risk of going short. And the allocation of defensive stocks can avoid the risk of falling short due to market rise in the later stage. Even if the market falls, our retracement is much smaller than the market.
The second type of event-driven stocks: Generally, after a listed company encounters certain negative events in the industry or the company itself, after evaluation, it is found that the impact of the event on the company is emotional or short-term, and the impact on the company’s mid-term The long-term impact is not serious, resulting in a panicked decline. This is an opportunity to give money. Generally, there are opportunities for such events to cause the company’s stock price to fall every year. After grasping it, you can realize a 50% to 1 times return in the short term. This type of event-driven opportunity, such as a safety accident in the company’s plant, a market panic caused by the exposure of major shareholders or executives due to their own scandals, performance that does not meet expectations, or a one-time loss, etc., all belong to this kind of opportunity. For example, the previous chairman of Youzu Network was poisoned by his subordinates, the major shareholder of Boya Biology, a major shareholder of blood products, Gao Tejia, was involved in divorce disputes and the company’s stock price plummeted due to misappropriation of the company’s funds, all of which made me earn about double the income.
The third type of cyclical reversal stocks: refers to cyclical stocks and distress reversal stocks. Cyclical stocks such as coal, papermaking, chemicals, pig vaccines, etc., are generally placed in the low period of the industry cycle, and sold when the industry’s prosperity peaks. Like I have caught stocks that doubled in these industries before; The stocks in transition are what we often call “princes in distress”. The company itself is of good quality, but it has plummeted due to temporary distress and humiliation on fundamentals. For example, the company’s performance decline due to rising raw material prices, rising costs, and short-term declines in downstream demand are all stocks that fall into the dilemma reversal category. In short, if you want to earn the money brought about by these changes in fundamentals, you must have a long-term follow-up process on these industries and companies in the early stage, so that you can perceive the subtle changes in the company’s fundamentals compared with the past. Especially for companies that are facing a reversal of difficulties, it is difficult to grasp the company’s operating turning point without continuous tracking for three to five years.
The fourth type of future growth stocks: Growth stocks refer to companies that are recognized by the market as high-profit and high-growth companies, such as Moutai, Pien Tze Huang, Proya, etc., because they are very expensive under normal market valuations, so it is difficult to buy opportunity to enter. I have always advocated that ordinary investors should not make money for growth, because as ordinary investors, we are in a market with unequal information in the stock market. Growth stocks are the cakes of industry experts and insiders, and it is best for ordinary investors not to covet them. And many times even if you earn this part of the money, looking back, it is often due to luck. Although our own characteristics do not have the factors to invest in growth stocks, we can use our human nature to grasp such investment opportunities. For example, when the market is falling in panic, good stocks and bad stocks all fall together at this time, which gives us the best opportunity to buy growth stocks. Since we are buying growth stocks when panic falls, we need to have a sufficiently rational character, otherwise it will be difficult for you to grasp the opportunity when it comes. 
$Kweichow Moutai(SH600519)$ $Pian Tze Huang(SH600436)$ $Hang Seng Index(HKHSI)$
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