In the stock market, should we make money for performance growth or for valuation? This is a problem that has always plagued investors. Recently, the author is extensively and deeply studying the stock selection ideas of head fund managers, which can be summarized as follows:

All the star fund managers in the head are basically not divorced from the two paths of value and growth summarized by the investment sages.

Coincidentally, Buffett can serve as a link to connect all the mainstream methodologies. Buffett once summed up his investment methodology as 85% of Graham and 15% of Fisher. The former is undoubtedly a deep value stock investor, while the latter is the ancestor of growth stock investment.

The thought of value

Graham, Buffett's first mentor, the application of his deep value theory can not be separated from the background of the times, in the United States during the Great Depression, only with strict undervaluation standards, can buy profitable varieties. However, the emergence of any arbitrage method will make the arbitrage space tend to disappear. So it rose slowly after the Great Depression, and this arbitrage has declined in the United States.

In the current era of infinitely loose global money, after a huge amount of liquidity has entered the capital market, and the consensus of the valuation model has been changed into the discounted future cash flow, I personally think that in the practice of the Chinese stock market, the application scenario of this methodology has also been greatly compressed. In 1959, Buffett met his second mentor, Charlie. Munger. Munger's understanding of the margin of safety is completely different from that of Buffett. Buffett is about price security, while Munger is about texture security.

Munger once said: invest in a great company at a reasonable price!

The real risk is not the price risk, but the texture risk.

Most people lose money because they buy junk companies rather than expensive ones. In today's words, a good company is more important than a good price. Similarly, another investment guru-Howard. Max's request to invest to avoid the risk of permanent losses seems to me to be the same. The advantage of this methodology is that it can quantitatively screen the whole market from the financial point of view based on objective data and inducted factor factors (such as scale, value, growth, security, etc.). And because the final choice of the target not only has a strong certainty in performance, but also has a long duration in time.

Therefore, the actual combat effect in China is quite good. For example, those big consumer fund managers who have long owned household appliances, food and beverages, and pharmaceutical biology have been in the lead for a long time.

At the same time, some mixed fund managers with value growth also have a lot of positions allocated here, and the choice of these growth value targets is based on a deep understanding of the security of stock texture. The disadvantage of this method is that the last selected industries and cases are very scarce, so it is almost difficult to find cheap prices except in the stage of systematic decline in the market. Most of the time, you can only accept a reasonable price to hold it for a long time and make money for performance growth.

Of course, I do not reject this view that it may fall into a narrow frame effect, and the observation period of more than ten years may not be long enough.

Train of thought of growth

The hardest part is the study of growth stocks. The essence of Fisher's growth stock investment is to focus on buying companies that are out of favor, outstanding companies in half-dead industries, or companies whose true value is ignored by the market because of the cyclical nature of the economy. If you do the right job when you buy, the time to sell the stock will never come. This method starts from the unpopularity of the market and, in a sense, earns the money of information advantage.

Its advantage is that if you have enough professional knowledge and have an accurate grasp of many variables in the investment world, once you make a bet, you can get a very significant excess return. For institutional investment, due to the low level of market capitalization in the buying stage, the relative proportion will rise, and Soros's reflexivity theory can continue to promote the rise in market value in the future. Of course, the disadvantage is that this method is difficult to analyze quantitatively.

Usually, market expectations will cause market prices to rise before good financial indicators appear. As a result, it is difficult to use normative theory to dig out growth stocks at an early stage, which is very different from growth value stocks that can be verified by data. They are usually discussed on a case-by-case basis, testing investors' accurate grasp of many professional factors, such as industrial policy, industry cycle, enterprise advantages and so on. Investors must carry out subjective qualitative analysis of a single industry from the bottom up one by one.

As a subjective descriptive statement, it is almost inevitable to be biased. At the same time, they are also deeply affected by market sentiment, cutting into the tuyere or encountering black swans will overcorrect their prices to two levels.

How to choose?

But in any case, from the posterior results, there are still some star fund managers who use this method to invest in growth stocks, and have achieved a good long-term record.

There are also some value growth mixed fund managers who regard the growth value stock as the basic position of "keeping straight" and the growth stock as the "surprising" part to widen the performance gap with their peers. For ordinary investors, it is easier to find normative theories to master the investment path of value stocks than to master the investment path of growth stocks, and the investment goal of exceeding the rate of inflation can also be achieved in effect.

Therefore, the author tends to start with the path of value investment.