Why underestimate and overestimate?

What is underestimated and what is overestimated?

(This article does not talk about specific buying and selling transactions)

One of the favorite sayings of price betting in Snowball and elsewhere is undervaluation. This “undervalued” often also refers to “low PE, low PB”, and even if the stock price has fallen for a long time, it is also called “undervalued”, and then the more you buy, the more you lose…

Today I will talk about this underestimation. I have discussed underestimation before , and I also said it from the perspective of “price investment”. Now it seems that it is too superficial and does not understand the most crucial question: why today’s “underestimation” can become “higher” tomorrow. Estimation”? ——You put so much effort into “bidding”, isn’t it just to sell what you bought at a low price to others at a high price?

1. What is underestimation and why underestimate?

The word “underestimated” is strange in itself. Low is relative to high. 1PB is undervalued than 2PB, but 0.5PB is more undervalued than 1PB. The stocks bought by 1PB can fall to 0.5PB. Therefore, it is very strange to think that it is undervalued if it is lower than a certain standard. absurd thing. If I say 5PB is undervalued than 10PB, can I buy 5PB stocks?

According to the usual view of price investment, there will be a hard indicator for undervaluation. For example, less than 1PB (net capital) is considered undervalued, or more strictly, less than net cash, or the dividend ratio is greater than a certain value, and the price-earnings ratio is less than a certain value. Value (such as 10)… And what is the difference between these standards and “23 times PE issuance of new shares”? It’s still a brainstorming decision.

And if we adopt relative indicators, we will underestimate ourselves even more, and we will underestimate other companies in the same industry… It is also not appropriate, because indicators often have reasons for changes, otherwise why would they be different?

So I think the concept of underestimation is imperfect and must be combined with the context and reasons for underestimation. So since we talk about undervaluation, we talk about cigarette butts, we have to talk about Graham and security analysis. I don’t want to talk about security analysis, I just want to talk about what’s behind security analysis. I’ve talked about what’s behind Buffett before — and it doesn’t hurt to talk about what’s behind Graham.

The book on securities analysis was written in 1934—the United States introduced the Securities Act in 1933. You can imagine what a book about hyping A-shares was published in 1998. Before 1934, after the Great Depression of 1929, and the previous “bull market” (you can understand it as the A-share bull market in 1993) – it was a chaotic and disorderly casino filled with Xu Xiang, and you have read the memoirs of stock operators. I know, Xu Xiang of the United States manipulated the stock market with impunity and became the richest man in the United States. Against this background, the stock market is full of shady scenes, similar to today’s Biquan, with stock prices skyrocketing and falling, and finally a financial crisis broke out, and investors suffered serious losses… At this time, Graham’s conservativeness was actually self-protection in that special era.

Let’s talk about the general environment. After 1929, the financial depression, the international situation was tense, and the world war had broken out. Does Graham’s conservatism make sense in this context? Suppose this year is the first year of the Third World War. Someone has written a book about investing in stocks conservatively. If you compare the trends in China and real estate this year, do you think it is justified to be conservative?

Therefore, the conservativeness of the grid makes sense, and the conservativeness of the market also makes sense. ——And why Buffett can still buy cheap stocks, because after 1934, one year is indeed worse than one year, and everyone is precarious. Who would think about buying stocks? At this time, the performance of the market was the norm, and Buffett’s purchase of stocks became an abnormality. Instead, Buffett was extremely optimistic.

And after confirming that the United States has entered a peaceful and prosperous age, Buffett also lost his cigarette butts and began to hype growth stocks? This is the correct understanding of the situation. And the cigarette butts in the peaceful and prosperous world are obviously not the cigarette butts they used to be. There must be some problems, so no one buys them. If they buy them rashly, they are just sending money.

2. Is underestimation justified?

Most of the time the underestimation is justified, and for good reason. In most cases, the reasons for the low PB and PE of individual stocks cannot be solved by us:

There is a risk of fraud

Major shareholder with one share

A flat stock with no growth and no dividends

Market consensus industry outlook is poor

These are the common reasons for “undervaluation” in the market. Here I focus on Hong Kong stocks . Some people say that Hong Kong stocks are special, but I don’t think Hong Kong stocks are special. In fact, except for the Chinese and American stock markets, the stock markets of most countries are not as good as Hong Kong stocks . Not every country advocates rapid development and makes a lot of money. Most countries’ stock markets are marginalized, and listed companies are flattened by zombies. Likewise, Hong Kong stocks are doing well.

The problems of Hong Kong stocks are actually the first three that are more prominent, mainly due to the serious risk of fraud (because the Hong Kong Stock Exchange basically doesn’t care), the majority shareholder has a dominant share, and it is impossible to implement Buffett-style value discovery behavior. Lie flat, rotten state. If you encounter a junk stock that doesn’t move, it means that the owner of the listed company doesn’t want to do it well at all. Maintaining the status of a listed company is just to make it easier for you to do things in the upper class. The company doesn’t pay dividends, doesn’t operate well, and doesn’t go bankrupt. That’s it, if the boss holds a majority stake in this kind of company, you have nothing to do. The same is true of many state-owned enterprises. They are basically in a state of lying flat, and it is ridiculous that you should carefully “study” their operations here.

Generally, we can’t solve these three problems, so it is reasonable to underestimate it, that is, no one touches it. If you really try to speculate on the stock price, you will be killed by the boss. The boss has finished smashing and buying a mansion.

So we can only touch the last one, that is, the market consensus industry outlook is not good-isn’t this back to cyclical stocks…

3. What the hell is a “catalyst”

Sometimes people like to comfort themselves, and they have to invent some strange words to consciously convince themselves. Catalyst is an example. Saying that undervalued stocks must have a “catalyst” to rise… Isn’t that pure bullshit?

Assuming that the previous underestimation is justified, then the sudden rise must be because the fundamentals have changed! This is not a catalyst, but a fuel. To double a low-priced garbage, it requires a lot of fuel (fundamental, capital…) and this fuel often needs to burn the whole society, and the whole society is put into the burning, in order to do A few tenbeaagers make everyone a fortune. . .

Isn’t the most typical one is COSCO SHIPPING Holdings? If there is no special historical period, the shipping industry will never be prosperous, right? Even if the ship is renewed, it will take ten or eight years, and there is no chance of ten times a year… A “value investment” master has talked about a few cases before. Isn’t that the case with SMIC and Great Wall? If several trillions are thrown into the game, and hundreds of millions of people are playing chicken blood, can the center be fired? You and I are fuel, understand your situation. It made sense for chip stocks to be rubbish before, and it makes sense to rise now. If it falls in the future, it will make new sense.

Why does “Beijing Enterprises” never rise? ——I have also bought and lost, because it is meaningless, does not need to rise, the world does not need it. No matter how much assets you have, we will not have the final say.

Why is “Bangua Land” chattering? Because there is a problem, we can’t solve it. It can only seem to be underestimated and underestimated, but it will become a loss in the next year…

Very good, someone immediately thought of it – according to this logic, low PE is no longer necessary, if the logic changes, you should directly buy the junk stocks that are losing money – that’s right… Investment guru, that’s you!

4. How can we make money?

Counting the stocks that I have lost the most, most of them have low valuations… On the contrary, the huge profits are all based on loss-making stocks + technology stocks… So to buy undervalued stocks is essentially believing that you are smarter than the market , and obviously you will be beaten.

Then some people will ask, why can Graham and Buffett buy cigarette butts? – Because they are really smarter than the market, and they are more optimistic than the market! You can also buy if you are more optimistic than the market – such as the current Zhongguang. If you are more optimistic than the market, you can follow Buffett’s example, ignore the risk of world wars and buy Zhongguang, and go long in the motherland to make huge profits.

If you can’t really be smarter and more optimistic than the market, it’s best not to challenge the market consensus. Basically, the market consensus is not good, and nine out of ten are really bad.

Then how to make money – the answer is that you can’t make money, buy index funds… (This is also Buffett’s point of view)

You can’t beat the sky, you can’t achieve market-beating returns for a long time, at least you can’t.

5. Shengtian Banzi

Speaking of which, many “price votes” should burst into tears. I know that many “price investors” are middle-aged people. They have worked hard for half their lives, and it is difficult for them to go further in their careers. I hope to learn “value investing” and make some achievements in the capital market, even if they are positive about themselves. Then they learned Buffett and became CMB.

The middle-aged CMB thinks that you (the market) are all stupid, and I am the smartest. You trade frequently every day, increase leverage, and fry derivatives, all of which are killing you. I drink a sip of wolfberry in a thermos cup, slowly change space with you, rely on “common sense” to win, hold long-term positions, grind for a few years, and double It’s always possible, and then wouldn’t it outperform the market average? And I have a lot of principal, several million, after ten or eight years, the big villa also came out…

But I said, it is impossible for a person to conquer the sky, to be beautiful… Buy real estate, right? Is it zero? Why don’t you buy Bi with me , the decline is even smaller than yours!

Because the individual in the market is stupid, but the whole is effective. Don’t watch us gamble all day, but the casino itself works. 99% of the time, you don’t try to beat the market. If the market says it is undervalued, there must be something wrong with the stock. You bought a dead end-because risk and return are directly proportional. On the whole, no one can obtain excess return without risk.

Either you take high risk and pursue high growth, or you decide that the fundamentals have reversed, and you put a heavy position into a low valuation, and wait for the low valuation to turn into a high valuation after the fundamentals flip. Either you directly add leverage to make short-term investments, but you don’t directly buy a low valuation whose fundamentals have not changed, and it can automatically become a high valuation—if it changes, the fundamentals must also change, if you don’t Knowing in advance is just luck.

But there is indeed a way to beat Tianbanzi——. take on liquidity risk

Sometimes the market will suddenly lose liquidity for some reason when there is no clear change in the fundamentals, which will force many people to sell stocks that should not be sold. If you can do “although I don’t understand valuation, but I understand human nature” – when a liquidity crisis occurs, if you provide liquidity decisively, you can get excess returns.

This opportunity usually occurs once every 3-5 years. At such a time, it is entirely possible to obtain excess returns by buying stocks with consistently good market consensus. The question is do you have this patience?

For example, the stock market in 20 years, this year’s Bishi, and the Chinese market in March…

Hey, what did you ask me to pay?

Still paid, paid the opportunity cost of the waiting period…

Alas, there is still no free lunch in the world, and people still can’t conquer the sky in the end…

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