Is value investing easy? We just need to select an excellent company, follow it, accompany the company’s growth, and wait for the company to create a steady stream of cash flow for shareholders to obtain profits. It looks very simple. Is value investing easy? How to find competitive companies, conduct physical examinations for companies every year, how to discover subtle changes in companies, whether there will be endowment effects, ignore the risk points of companies, the collapse of thousands of miles of ants, the wind blows at the end of Qingping, The waves are formed between the slight waves. It doesn’t seem to be as easy as it seems. This may be what Buffett said in vesting is simple, but not easy.
Value investing only needs to learn two courses, one course is how to value a company, and the other course is how to correctly face Mr. Market. No matter which course it is, it is a huge test for investors. The principle of investment is very simple. The value of an enterprise is equal to the discounted value of the free cash flow generated by the enterprise in the entire life cycle in the future. This sentence The principle is not difficult to understand. I only need to buy when it is lower than the enterprise value, and sell when it is higher than the enterprise value. I usually sit still, and we don’t need to pursue the free cash flow that the enterprise can generate in the entire future life cycle. We only need to pursue vague correctness, but the difficulty lies in the fact that Buffett’s value investing involves a lot of consideration of qualitative factors such as management and corporate culture when valuing companies. When a 200-pound fat man stands in front of us, although we only need to confirm that he is a fat man, these qualitative factors cannot be quantified, which increases a lot of uncertainty. Some people will say that we need to keep Larger margin of safety, but often due to the unpredictability of future free cash flow, the management and corporate culture will be given greater weight in valuation, but the margin of safety is actually only a layer of safety for our investment. , It is not possible to completely avoid risks. After the investment company has problems, no matter how much safety margin is left, losses cannot be avoided. The stock price of 10 yuan has fallen by 90%. If you buy it and then fall to 0.1 yuan, your loss is not 9% instead of 90%. For a company that is driving backwards, it is correct to get off at any time, and timely stop loss is always the smallest price.
In the 1980s, Michael Porter, a professor at Harvard Business School, proposed the famous Porter’s five forces model in his book “Competitive Strategy”. He believed that there are five forces in every industry that determine the scale and intensity of competition. , they are barriers to entry, threat of substitutes, buyer’s premium power, seller’s bargaining power, and competition among existing competitors. But often when we apply the above five criteria to actual cases, we will find it difficult to find an exact matching target.
Every few years there will be a group of star companies in the capital market. They will have some flaws to some extent, but they will often be covered up by short-term bright performance. , will be ignored by investors, as the so-called flaws do not hide their strengths, just like the stars on TV, what will always be shown to the audience is their impeccable appearance and perfect singing skills. But after the aura fades, he is just an ordinary person. Was it because those investors couldn’t see the risks at that time? Obviously not. In hindsight, everyone can always find 100 reasons why he failed. Now it seems that those reasons are extremely correct. Even those investors who relied on investing in them to succeed knew it from beginning to end, because they spent a lot Time to research, looking for clues from financial reports, doing company research offline… Is it because they are not good enough? Obviously not. I think there may be two reasons why I didn’t withdraw in time before the fundamentals deteriorated. One reason is that everyone’s energy is limited due to the constraints of the circle of competence. A lot of time and energy are spent, unwilling to give up the existing achievements, feeling afraid of learning a brand new industry or enterprise, getting involved in an unfamiliar industry needs to start from scratch, and there will be historical baggage. The second reason may be that there is an endowment effect. People are always emotional and cannot be completely rational and objective. “The future will get better. History has proved that the excellent companies in the past will probably still be excellent in the future. We must believe in the management…”, but investment sometimes requires faith, otherwise those who insisted on the Sangong consumption and plasticizer incidents What did the investors who insisted on Yili shares rely on under the Moutai and melamine incidents? Including Tencent, whose Internet traffic has peaked, anti-monopoly suppression and short-term performance decline, and Ping An, whose agent reform has seen a decline in the value of new business. It remains to be seen whether their persistence will bear fruit, but their future path is to go to Minsheng Bank, Changyu Bank, etc. A, Sichuan Changhong, Suning Tesco, or the second Moutai and Yili? How we balance the emotional and rational components of investment, when we need faith, and when we need to face reality is indeed a difficult problem.
No one can succeed casually. Value investing is not about holding on to a bunch of so-called core assets. The annual dividends and re-investment can make you win. Accompanying the growth of an excellent company is indeed in the form of holding it without worrying about it every day. The ups and downs of the stock price, the price fluctuates around the value, but behind it is a large amount of data analysis and logical reasoning. The so-called core assets we see today are the stars that have survived the waves of this era, but how can we ensure that in the next Are they still standing under the tide? How would you invest in such a business? Such a large capital expenditure does not create free cash flow at all. What is the use of high growth rate? In the end, what is left to shareholders is just a bunch of factory buildings and scrap metal. As shareholders, they are here to make money. Cash flow is the real thing. Profit is just a number on the accounting subjects, and it is indeed new energy. Who still drinks liquor nowadays? The sales volume of liquor is shrinking, and the high-end liquor market is indeed expanding, but once the demand is lost, the so-called financial attributes and luxury attributes will disappear overnight, similar to real estate in the past two years, without demand, there will be no finance attribute, is it still necessary when returning to the attribute of residential consumption? Isn’t insurance a scam company? What is the investment value of a group of companies engaged in pyramid schemes? In the future, the yield of government bonds will fall, and the withdrawal of insurance reserves will increase, which will erode the profits of insurance companies and cause interest spread losses, which will suppress the valuation of insurance companies for a long time. Do not compare the depth of foreign insurance density to measure the domestic insurance market space, the system is different. The high risk of innovative drugs is also affected by volume purchases, and the increase in medical insurance expenditures in an aging society makes price control an inevitable trend. I am not denying the value of companies in the above industries. I just want to express that there are no perfect companies. Value investing is far from easy as imagined. It is always easier to draw correct conclusions after the event. So in the future, if we see a lot of big Vs telling us that investment is very simple, that is, to enjoy compound interest with core assets, and then delete the software as a shopkeeper, we need to be more vigilant. This capital market without threshold can easily put money into one’s own pocket? Don’t be obsessed with those one-in-a-million wealth creation myths, either because of survivor bias, or because of the huge effort behind it and the ability to maintain absolute rationality and objectivity.
In the book “Built to Last” by Jim Collins, all the cases cited by the author, those companies that can be built to last, now seem to have fallen a lot, and the qualities of those fifth-level managers can only increase There are no sufficient conditions for investment to maintain the possibility of evergreen business, but only necessary conditions. This may also be the charm of investment. Don’t try to find a universal formula that can make us invincible, so lifelong reading has become the biggest career of an excellent investor, and I try my best to read everything. — Buffett.
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