Value investing, stock selection is the key. Value investing advocates growing together with the companies it invests in, earning money for the company’s growth and dividends, so it has extremely in-depth research on the companies and industries it invests in. So how should value investing choose stocks?
1. Principle: To ensure the safety of funds, do not lose money
1. Invest with spare money without leverage. Value investing is a long-term investment, and the intervention in stocks is based on value. Due to the extremely unstable mood of Mr. Market, it is difficult to guarantee buying at the lowest point, and few people actually do it. Even if it is a valuable stock, it may experience a long lock-up after buying it. If it is not an investment with spare money, this is unbearable. If there is a cost of funds and a stop loss liquidation line, even if you buy a good stock, you will often "die before dawn".
2. Buy at a low price. Valuing conservatively and buying at attractive prices is what Buffett calls a "margin of safety." Of course, the lower the purchase price, the better, but what is a low price? The level of PB and PE does not necessarily represent the level of valuation. However, if PB and PE are low, the probability of underestimation is high, and vice versa, the probability of overestimation is high. A more important indicator is - ROE return on net assets. A high ROE indicates that the company has strong profitability, and the company can use less assets to obtain more profits. It would be better if the ROE is established on the basis of no or very little debt. Most of these enterprises are asset-light enterprises, such as high-tech enterprises, talent-intensive enterprises, and platform enterprises. Compared with heavy-asset enterprises, they are more resistant to risks and inflation. bigger.
3. Buy the company. A stock is not a piece of paper, but a right. When you buy a portion of the shares, you own a small portion of the company, a shareholder of the company. Value investing is to treat oneself as a shareholder, so you must be cautious when choosing what kind of shareholder of a company, you must know the company well, and you cannot be a "three-know" shareholder. How, then, can this awareness be developed? Faced with this problem, Buffett said this, if you could only buy ten stocks in your life, how would you choose?
4. Buy companies in industries you are familiar with and have a deep understanding of. Stocks = shareholders. Shareholders can't do it casually. If you don't understand this industry and this company, what kind of shareholder should you be? It will only be "being made a shareholder". You must be a shareholder of a company in an industry you are familiar with and know well, which is what Buffett calls "doing things within your own circle of competence". First of all, you must figure out where your "circle of competence" is? The energy circle does not need to be big, but you must be clear about the scope of your own ability circle, what do you understand and what do you not understand? Just do what you know, you are an expert.
5. Portfolio investment. Portfolio investment can reduce unsystematic risk and prevent large fluctuations in investment. Each stock in the portfolio is carefully selected, and its correlation is small to become a portfolio, for example, it cannot be a sector. A portfolio of about a dozen stocks is enough. Put a dozen stocks in one basket and be optimistic about it.
2. Two directions
1. Investigate the company's past and present profitability
reference indicators as follows:
A. The stock price level. That is, the historical position of the stock price;
B. Valuation. PB, PE, ROE;
C, profitability. Gross profit, net profit, ROE (it is best when there is a small amount of debt or no debt), profit stability, and profit growth rate;
D. Financial indicators. Income statement: income, expenses, and profit components (main and non-main operating income). Balance sheet: assets, liabilities, accounts receivable, turnover ratio, current ratio, quick ratio, asset-liability ratio, depreciation and amortization of fixed assets, goodwill impairment, etc. Cash flow statement: operating cash flow (very important), it is best to maintain continuous and stable growth;
E, dividends. Dividends are an important part of value investment income and need to be taken seriously.
2. Investigate the company's future sustainable profitability
A. Long-term economic prospects. This point is mainly judged from five aspects, the macroeconomic situation (domestic and international), the development of science and technology, the population development, government policies, and social culture.
B. Outstanding economic characteristics. The company's profit model, core competitiveness, and moat are the so-called "unicorns".
C. Economic franchise. The power to raise prices without losing market share. This involves industry analysis, including the internal competition of the industry, the situation of new companies entering the industry, the possibility of products being replaced in the future, the bargaining power of companies to upstream and downstream, the barriers of the industry, the distribution of internal production capacity in the industry, and the matching between production capacity and demand , the life cycle position of the industry, etc. Companies with such characteristics are leading companies with high industry barriers and are difficult to replace, and have strong bargaining power with upstream (suppliers) and downstream (consumers).
D. Economic goodwill. It is an intangible asset, like brand, reputation, the value of the product used by the buyer rather than the cost of production. Intangible assets can enable a business to generate above-average profitability on tangible assets—plant and equipment. This indicator is closely related to the level of ROE.
E. Managers. Honesty, competence, trust, admiration, and serving shareholders.
F. The bottleneck of enterprise development. The company has a clear development strategy, has a clear understanding of its development bottlenecks, and has made sufficient preparations to lay a solid foundation for breaking through the bottlenecks.
All the above are personal opinions and are for reference only. According to this operation, the profit and loss are at your own risk, investment is risky, and you must be cautious when entering the market.
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