I have been engaged in investment for more than ten years, and I have experienced many ups and downs. Some “values” have returned, and some have never, or just a cycle of ups and downs. This got me thinking about what value is.
The value I understand comes from the inefficiency among peers, and the time it lasts. For example, the value of Saudi Aramco comes from comparing the cost of barrels of oil with the industry average, and how many years it can maintain such efficiency. Monopoly is also a kind of inefficiency, which prevents the entry of latecomers, so the existence of inefficiency has been maintained for a long time.
Why did we buy Tesla in the fourth quarter of 2019, because the gross profit margin has entered an inflection point since the third quarterly report, and in the following quarters, it surpassed the “Toyota”, a model of traditional car efficiency, and poor efficiency was formed, which means that trams began to enter the general public , then we naturally follow high-potential companies. Tesla at the time was valuable in my eyes.
Our current popular analysis method focuses too much on the short-term margin, whether it is sales or price. I think it has entered a certain misunderstanding. Back to Saudi Aramco, if we hold the original intention of long-term equity, if we focus on the inefficiency and its existence Time, whether the oil price is 30 or 100, it doesn’t matter, the world uses so much oil, if their average cost is 50, then as long as its efficiency can be higher than this, it will be profitable sooner or later, and this value is also relative. Stable and can be measured and tracked. Thinking at an extreme point, there was a negative oil price in March 2020, which obviously does not mean that the value of the industry will return to zero at that moment.
From this, I also came to a conclusion that mediocre companies have no value, and only excellent companies are worth talking about (worthy of investment). If your mining cost is above average, say $70, you might be making money at $100 oil, but it’s worthless in the long run. Jumping out of oil exploration and entering the real estate industry, for example, Evergrande has such a high capital cost to reserve land. Maybe you step on the right rhythm for a while and make a lot of money, but as long as you keep playing in it, sooner or later you will encounter the wrong step. At that time, such a company would have no value in my eyes, even if the assets, land, and even the short-term profits created would be greatly discounted from a static perspective.
This inefficiency is not static, but we should be tracking changes in corporate efficiency, not price changes for a certain product/service, which may just be cycles, not value.
How to find this kind of change? A relatively lagging way is to pay attention to the change in market share, which is the inevitable result of the change in efficiency. The original industry leader should be very careful when the market share goes down, especially in the Internet industry. , it is safe (no physical radius), which is why we were fans of Ali before 2019, and then abandoned it. Although this method lags, once a trend is formed, it usually lasts for a long time, so it is relatively easy to execute. Of course, we can also pay attention to technology trends and business management, which may precede changes in market share, but prediction also means more difficulty and a higher probability of errors. If it is not in the deep competence circle, I do not agree with predicting changes, but tracking changes more.
This current research misunderstanding, all the smart people squeeze their heads to study the margins, study the prosperity, and take the so-called insider, actually gives us a very good opportunity for investors with mediocre qualifications, some market pricing is ridiculous to see , magnifying the short-term, but ignoring the long-term, giving bad businesses expensive valuations, and good businesses extremely low valuations, and we face very little competition.
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