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凡是不可证伪的投资理由,都是自己忽悠自己

Any investment reason that cannot be falsified is fooling oneself

思想鋼印 ·  Mar 27, 2023 23:59

Source: Steel Seal of Thought

1. First, you must be able to judge that you are wrong

When I analyzed odds in previous issues, I quoted Soros's point of view:

It doesn't matter if you see it right or wrong; the important thing is to see how much you can make and how much you have to lose if you misunderstand it.

There is a precondition for this view,You first need to be able to tell if you're right or wrongHowever, many people are unable to do it; their original investment reasons themselves cannot be falsified.

Soros's investment philosophy was largely influenced by his teacher Karl Popper (Karl Popper), one of the representatives of “falsifiable philosophy.” He believes that the core of the scientific method is the “principle of falsification” rather than “being proven.”

“Unfalsifiable” refers to propositions that cannot be overturned.For example, Carl Sagan gave an example in his book “The World Inhabited by the Devil”: a person claims that a flying dragon lives in his garage. This dragon cannot be seen, makes no sound, and leaves no traces of any kind. This dragon is “unfalsifiable,” so this dragon cannot be trusted at all.

Science can be falsified; anything that cannot be falsified is not science.

Faith is the quintessential “unfalsifiable” thingIncluding religious beliefs, literature and art, values, and moral codes, nothing can be falsified.

Personal experiences and feelings are also unfalsifiableIf your male (female) friend tells you that he dreamed of you yesterday, this is an “unfalsifiable” example. Believe it or not.

In investment, many reasons that sound very self-justifiable are “unfalsifiable”, such as:

The stocks that can rise are all well-off; it's just that they are hidden very well; no one else can see them;

The rise and fall of the stock market is controlled by the government. Whenever it wants you to rise, you go up.

If you believe in things that cannot be falsified in life, and the problem isn't too big, then unfalsification in investment is the difference between losing money and making money.

A good investment reason should not only prove, but also clearly indicate what data, phenomena, and indicators will there be in the future to reverse that judgment and allow you to stop your mistakes in a timely mannerIf it can't be done, then it's probably just a belief or feeling.

The content of this article includes:

1. What are falsifiable investment reasons, and what are not falsifiable?

2. The difference between long-term value investment and prosperity investment in terms of falsification

3. Why do you like hype about the subject but cannot be falsified?

4. Why does your falsification make money that no one else can falsify?

First, please judge. Which of the following investment reasons are “unfalsifiable”?

Reason 1: After new products enter supermarket channels, future sales will increase month by month

Reason 2: Key projects are advancing at an accelerated pace, and the second half of the year will usher in a production release period

Reason 3: An inflection point in the industry is imminent, and there is a margin of safety in valuation

Reason 4: A new round of state-owned enterprise reform has begun, and PB restoration can be expected

Reason 5: Differentiated management can maintain high gross profit

Reason 6: The company's business model is a franchise, and it is a company that even a fool can manage

Reason 7: Seeing such a good opportunity, you should concentrate on position investment as much as possible

Reason 8: As long as the Fed believes inflation remains the biggest threat, they won't stop raising interest rates

Reason 9: This is a long slope with heavy snow

Reason 10: XX leader, stable moat

Reason 11: This is an artificial intelligence revolution comparable to the industrial revolution and the information revolution. A number of new companies with a market capitalization of 100 billion dollars have emerged

Reason 12: XXX Company will launch its own big model next month, and there is huge room for stock prices

Reason 13: XXX Company should inject assets to allow the Group's high-quality assets to be listed as a whole. There is huge room for market capitalization

2. What can be falsified and what cannot be falsified

When you see a bunch of reasons to recommendWhether these reasons themselves are correct or not is the second question; first, they should be falsifiable.

Reason 1: After new products enter supermarket channels, future sales will increase month by month——It can be falsified. In the future, it is only necessary to track sales volume month by month. Failure to achieve month-on-month growth indicates that the reasons have been falsified.

Reason 2: Key projects are advancing at an accelerated pace, and the second half of the year will usher in a production release period——It can also be falsified. In the future, it is possible to track whether new production capacity is launched as scheduled according to the pace provided by the company.

Being falsifiable does not mean that this is a correct reason to invest, let alone guarantee that the results will be profitable.Being falsifiable only gives you a chance to judge whether your reasons for investing are wrong, and a chance to correct your mistakes.

Reason 3: An inflection point in the industry is imminent, and there is a margin of safety in valuation——It cannot be falsified. Whether the valuation has a margin of safety is a very subjective judgment. No matter how low the valuation is, it may be “too expensive,” so it is impossible for you to find evidence against this judgment, so it is “unfalsifiable.”

Reason 4: A new round of state-owned enterprise reform has begun, and PB restoration can be expected——It is also unfalsifiable. On the face of it, it provides an investment experience. State-owned enterprises have an obligation to preserve and add value to state-owned assets. When the net market ratio is too low, the valuation can be raised to 1 or more through procedures such as asset injection and acceleration of new business.

However, this experience cannot be used as a reason for investment, because you also cannot cite a counter example. In companies with a PB of less than 1 times, the management is also working hard, and they also hope that the stock price will rise. You cannot prove that this is not a “state-owned enterprise reform.”

From these examples, it's easy to see the importance of “falsification” in investing:

If it is a reason that can be falsified,You won't be moved by falling stock prices until there is falsificationOn the contrary, if there are certain signs that it is being confirmed, you should go the extra mile to check the bottom;

If it is a reason that can be falsified,After falsification, you should resolutely abandon this investmentNo matter how much you've been locked in, no matter how cheap it seems, you have no reason to keep investing.

Conversely, if you invest only for reasons that cannot be falsified, such as “low valuation” or “the state-owned enterprise has a demand to repair PB,” then, in an information vacuum, you will be anxious whether the stock price rises or falls. As a result, you cannot withstand the pressure to sell — the probability is falling.

The research analysis report is a scientific structure.The foregoing is an investment reason that can be falsified. The final risk warning is actually when this reason has been falsifiedIf the reason is “future sales volume will increase month by month,” then the risk must include “the decline in sales volume falls short of expectations.”

However, many of the reports themselves are unqualified. For example, “valuations have a margin of safety”, it is difficult to deal with corresponding risks; for example, “a new round of state-owned enterprise reform begins”, what are the corresponding risks? You can't just say “the reforms fell short of expectations”, right? How can you verify that? Therefore, we can only talk about risks such as “falling orders” and “increased competition” that have nothing to do with investment reasons.

Investment reason 5: Differentiated management can maintain high gross profit

“Maintaining a high margin” can be falsified, but “differentiated management” is a rather vague statement. There are various degrees of differentiation between products produced by most manufacturers. There are no indicators to judge the size of differentiation, let alone whether differentiation is positively correlated with gross margin in all ranges. The result is that if gross margin falls, it is difficult for us to determine whether it is due to a decrease in the degree of differentiation.

Therefore, this common reason, which seems to be very reasonable, is also “unfalsifiable,” and it is difficult to be fully trusted.

Continue to look at investment reasons 6 and 7.

3. Investment beliefs cannot be falsified

Reason 6, 7,They are all typical Buffettian-style investment ideas, not investment reasons.

Reason 6: The company's business model is a franchise, and it is a company that even a fool can manage

This is a typicalProvable but unfalsifiable reasonsWe can cite that many enterprises have been operating stably over a long period of time, but the management level is average, and changes frequently, but this is just proof. If there is a problem with Maotai's operations in the future, we cannot determine whether the “moat” has been falsified, or whether the “moat” is fine, but the company's management is not good enough.

Perhaps this is a useful investment idea, but the relationship between opinion and evidence is fragile and based on subjective value judgments.

Reason 7: Seeing such a good opportunity, you should concentrate on position investment as much as possible

Similarly, “centralized investment” or “diversification of investment” is related to investors' earnings expectations. It is an issue at the level of investment beliefs and values. Not only is it unfalsifiable, it is even unprovable.

Faith is not unimportant,Investing requires faith; it just can't be a reason to invest.

Using faith as a reason to invest can also easily lead to the logical fallacies of “circular certification”, such as:

Reason 8: As long as the Fed believes inflation remains the biggest threat, they won't stop raising interest rates

Circular certification is a mistake that investors often make in macro-analysis. “The Federal Reserve believes that inflation is the biggest threat” itself is unobservable. They try to use the results of one variable to prove the correctness of this variable itself, thus forming an infinite cycle of arguments.

This type of viewAlways right, but of no use.This includes but is not limited to:

If there are more buyers, it will rise; if more people sell, it will fall;

Take the upward trend and sell when the trend changes

Looking at reasons 9 and 10, they themselves are “falsifiable,” but they are very difficult and require corresponding investment methods.

4. Falsification matches the investment period

Reason 9: This is a long slope with heavy snow

Reason 10: XX leader, stable moat

The above two are typical long-term logics. They themselves can be falsified, but their falsification process is very lengthy. The verification period is at least one investment cycle, and the starting price is five years.

If your usual investment period is one or two years, then these two reasons do not support your investment, and you can easily lose confidence in a company's declining cycle.

For this type of company, you also need more “falsifiable” reasons. For example, you need to quantify “heavy snow on long slopes” and “leading moat status” to a certain year. Its growth rate can slow down, but it needs to be higher than the industry average to see an increase in market share within a declining cycle.

It's like if you think a student is very smart and can be admitted to Tsinghua Peking University, but you also need to constantly verify whether it is lower than the top five in the school in different difficulty and similar examinations, and refine the long-term “falsifiable” logic into a “phased falsifiable” investment reason.

Compare these two investment methods:

Traditional deep value investments have a long “verifiability” cycle, so the requirements for logical strength are higher, and the margin of safety is higher; prosperity investments based on phased performance performance are viewed as “phased verifiability,” and the observability of performance is more demanding.

Reason for investment 11: This wave of AI is an artificial intelligence revolution comparable to the industrial revolution and the information revolutionIt will be applied in depth to various fields, change people's lifestyles and social structures, and create a number of new companies with a market value of 100 billion dollars.

If you treat this proposition as an investment belief, of course, there is no need for falsification, but if it is an investment reason, it can actually be falsified. Like the above reasons, the verification period is very long; it takes 5, 10, or even 15 years.

Therefore, many traditional value investors are somewhat skeptical about this wave of AI, mainly believing that it is difficult to see substantial business in the short term, just to say that falsification is too poor.

Of course, if you look at the subject matter from the perspective of hype,This kind of reason, which can be falsified in the long term and unverifiable in the short to medium term, is instead the best subject of hype.

5. The principle of non-falsification of subject hype

The characteristic of the hype is that those who believe first buy it, let the unbelievers get away with it, and then force these unbelievers to have to believe in it by forcing them to fight back, but only join.

Speculating on the subject makes money from market sentiment. Reason is a natural enemy, and the “unfalsification” based on belief keeps the subject “invincible”Many companies, taking a look at the research report's short essay, are the future Microsoft Nvidia. Going to the field for on-site research is all new benefits of LeTV in the past.

Therefore, “unfalsifiable” is the most important prerequisite for hype about the subject. Whether it's the new energy revolution three years ago or the current AI revolution, whether it's the digital economy or the central evaluation, it's “phased unfalsification” to a certain extent. Look again——

Reason 12: “Company XXX will launch its own big model next month, and there is huge room for stock prices”

This is falsifiable; it also has a very clear time point in time when it can be falsified — a certain day in April.

However, from another perspective, March was “absolutely unfalsifiable,” so it was also the best subject of hype.

However, by April, when the stock price reaches a high level, it will fall into a game. Once it falls short of expectations, where does the stock price go back and forth, smart capital will not choose this kind of pure game event with a 50% win rate.

Therefore, “impossibility of falsification” is one of the bases for judging market style,When the opinions of the market focus on logic that cannot be falsified, the explanation style is mainly based on subject speculation; When all the logic behind rising stocks in the market is falsifiable, it means that at this point it has entered a stage driven by prosperity or driven by fundamentals.

Of course, I'm not saying that the subject matter is bad; it's just that everyone needs to know whether they are making money for emotions or money for logical fulfillment.To make emotional money, you need to pay attention to “unfalsifiable” reasons. To earn money that realizes logic, you need to pay attention to “falsifiable” reasons.

6. Strong can falsify, defeat weak can falsify

There are some investment logics that can be falsified, but you have no ability to falsify them, such as

Investment reason 13: XXX company should inject assets so that the group's high-quality assets can be listed as a whole, and there is huge room for market capitalization

Leaving aside the fact that it is an insider source, the biggest problem with this investment reason is,Although it can be falsified, you have no ability to falsify itEven if it's news from a very reliable person, it can lead to an “insider information paradox”:

If inside information is seriously leaked, then the existing restructuring may have to be suspended; if inside information has hardly been leaked, then how can you seek evidence from a different path?

If there is a sharp decline after buying, then the only right response for you is to stop loss. Right from the start of this investment, you're in a very disadvantaged position.

Conversely,The best investment is that you can falsify, but others don't have that ability.

For example, if you have an exclusive information research channel in a certain industry, you can verify business progress. As a result, when the market is good, most investment opportunities will be discovered, attracting a large number of investors who actually do not have the ability to falsify to buy. Once they encounter systemic risk, these investors have no choice but to panic and sell first because they are unable to verify fundamentals, causing the stock price to drop over and over again, creating an excellent buying opportunity for you.

So falsifiability is not only a gold standard, but also a weapon:

You can beat falsification over others that cannot be falsified,

Strong falsification overcomes weak falsification,

What can be falsified quickly overcomes falsification when slow is falsified.

The last classic case is Haidilao. As a pioneer in a restaurant chain, it has been frantically opening stores in 20-21. There is definitely a limit to the number of stores opened, but no one, including the owner himself, knows where this limit is. If you want to know the answer, the only way to keep opening a store until the turnover rate drops and cannot be recovered is the limit.

Although Haidilao's valuation was outrageous at the time, it was still rising because this was a falsifiable investment reason. The key was to keep an eye on the turnover rate to see who falsified it first, so they could escape the top as soon as possibleCurrently, no one wants to get out of the car first until it has been falsified.

At this point, the worst disadvantages are long-term retail investors who only look at the logic of opening a store but have no ability to prove falsification, from the top of the mountain to the foot of the mountain, followed by retail investors who only do grassroots research, and are only able to escape to the middle of the mountainside. Agencies with “strong counterfeiting capabilities” are also graded: the worst are seller agencies that conduct low-frequency research; the stronger ones are those that have the ability to find POS machines, but the number of stores is not representative; the smartest people go directly to the power bank manufacturers that Haidilao cooperates with. Basically, they can see the previous day's data the next day, and it's global, so it's the first capital to escape.

Similarly, Dongfang's selection peaked because its live streaming sales peaked too soon, thus falsifying its broad logic of e-commerce market space for high-quality agricultural products.

The biggest bull stocks in history have seen that the core logic is “falsified”. Whoever has the ability to falsify it first is more accurate who escapes the top.

So,The shorter the investment period, the more biased the incident, the higher the valuation and increase in the bid, the higher the requirement for falsification;If you don't have strong falsifiable resources, either participate in sentiment hype, or find some long-term white horses with a very long verification cycle.

7. Investments do not pursue accuracy

Investments do not seek to be correct, but profit. There are many logically justifiable investment reasons. Because they are “not falsifiable,” they often lead to investment losses.

According to Carl Pope, a scientific theory has not been falsified through many experiments and observations, but is only temporarily accepted as truth. This does not mean that the theory is absolutely true; the theory may still be falsified.

Editor/jayden

The translation is provided by third-party software.


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