My favorite time to hold a stock is forever.

Buffett is the most successful stock investor in the world. His greatness lies not only in his long-term defeat of the market, but also in that he has turned stock investment into a philosophy, leaving the world with ideas such as holding for a long time and sticking to the circle of ability.

So how high is Buffett's rate of return? Let's look at a picture.

We can see from the picture that Buffett's peak was in the 22 years from 1976 to 1998, with an average annual return of 30.4%, far outperforming the market.

If you look at the rate of return, you may not realize the strength of Buffett, so let's convert it into specific returns:

It's 10 times more demanding than 10 years.

There is a proverb in the fund world: there are as many as one year doubling stocks and few five years doubling stocks.

10-fold shares in 10 years have been hard to find, let alone the portfolio has achieved more than 10-fold returns over 10 years.

Buffett also has a famous strategy: buy a good company and hold it for a long time. Buffett himself has owned Geico and Coca-Cola Company for decades and made huge returns from it, proving that this strategy works in US stocks.

So, if we put this strategy on Hong Kong stocks, how should we choose stocks?

We counted Buffett's shares, which have been held since October 3, 2014, and then have outperformed their peak returns (more than 3.7 times in five years), and the results are as follows.

Ps: the stock price is calculated on the basis of non-entitlement

The results show that only 37 stocks meet the conditions, accounting for about 1.5 per cent of the 2422 stocks in the Hong Kong stock market. In other words, if you want to "lie down" and become a stock god, you must first choose one stock in a hundred.

(moreover, stock king Tencent and vitamin milk also failed on the list.)

We further relax the standard, not limited to the buy and hold strategy, we can only hold it for a period of time, the number will increase to 323, and the probability will increase to 13.3%. From this point of view, the probability of becoming a stock god is a little higher.

Of course, there will be some rising and falling fairy stocks in these stocks, and after removing these fairy stocks, there will be even fewer real investment opportunities.

Combing through these stocks, we find that most of them are not unfathomable, but more stocks like Anta, Mengniu and China Resources Beer appear around us. Therefore, as long as we carefully observe the things around us, there is still a good chance to seize these stocks.

However, the investment logic of these stocks is not the same. Another investor, Peter Lynch, once proposed six famous stock types. Let's classify these stocks that outperform the Buffett Index according to these six types.

The logic of the rise of the six types of stocks is not the same, some rely on operating performance to promote eps, some rely on changes in the industry pattern to bring about a rise in valuations, and some rely on changes in accounting standards to bring a substantial increase in profits.

In this article, let's first take a look at how the opportunity of China Resources Beer, a representative of slow-growing stocks, came about.

Background

Slow-growing stocks have several characteristics according to Peter Lynch's analysis:

In the Hong Kong stock market, most of the banks and public utility stocks belong to the slow growth type. These stocks have stable performance and high dividends, but the stock prices grow slowly and generally do not rise or fall sharply.

As a result, there are very few stocks that outperform Buffett in these industries. There are 28 stocks in the entire banking sector, and only China Merchants Bank finally runs out. It is difficult to make money in these industries.

China Resources Beer is also a successful stock in a slow-growing industry. If we bought 2000 shares in October 2014, the price of China Resources Beer (then China Resources Entrepreneurship) would be about HK $36000. Today, the price will be 84000 Hong Kong dollars (2.3times).

In 2015, as a result of restructuring, China Resources spun off its retail business and paid dividends from the sales business, totaling HK $12 a share. with dividends, our total return will reach HK $106000 (2.9 times).

If these dividends were bought again at that time, the return now would be two shares of China Resources Beer, with a total return of HK $168000 (4.6x).

Outperformed the Buffett Index by a large margin.

Overall, the beer industry is a slow-growing industry.

Beer entered China at the beginning of the last century and began to be popularized in 2000. after more than ten years of development, the market has entered a state of saturation. Over the past five years, per capita consumption of beer has gradually declined, and the growth of the industry is mainly due to the increase in the price per tonne. There are several reasons for this phenomenon:

The first is a reduction in the demographic dividend. China's population growth has slowed over the past decade, the population has begun to age and the number of people who drink alcohol has declined.

The second is the change of consumption habits, with the improvement of per capita income, consumption presents a diversified form. The rich tend to drink high-end spirits, while young people like to drink spirits such as whiskey, leading to the gradual diversion of beer drinkers.

Finally, after the improvement of the consumption level of Chinese people, they pay more attention to their health, so the frequency of drinking gradually decreases.

In these slow-growing industries, it is difficult to find high-return investment opportunities, and there are two possible opportunities:

1. Divestiture of assets and dividend.

two。 Changes in the pattern of the industry.

And China Resources Beer happened to run into both.

History of development

Let's take a look at the development of China Resources Beer in recent years.

China Resources Beer was also called China Resources Entrepreneurship in 2014, and its business at that time included China Resources Wanjia, Yibao Mineral Water, Wuchang Rice, Snow Beer and other businesses, covering all aspects of people's food and drink.

But at that time, China Resources Entrepreneurship was big but not strong, with high revenue, but losses in the retail and food businesses led to a decline in the company's overall profits, and its market capitalization fell from HK $76.3 billion in 2010 to HK $39.3 billion in 2014.

In 2015, the management made up its mind to sell the non-beer business to China Resources Group at a price of 28 billion Hong Kong dollars, leaving only Snow Beer's business, which developed smoothly. In the same year, the listed company changed its name to China Resources Beer and focused on beer business.

The dividend of HK $12 per share was paid to shareholders from the sale, which was the first return on the investment in China Resources Beer-the dividend from the divestiture, which returned 66 per cent based on the purchase price of HK $18 in October 2014.

After the restructuring, although China Resources Beer's revenue grew by only 1 per cent a year, its share price soared from HK $12 to HK $42, and its price-to-earnings ratio rose from 50 to 100. What is the reason why China Resources Beer's valuation has changed so much?

The main logic is industry consolidation.

For a long time in the past, China's beer industry has been in a state of full competition. Due to the influence of bottling, the sales radius of the brewery is only 150-200 km, which has led to a large number of players in the industry and cluttered brands.

Since 2000, some leading players, such as China Resources and Qingdao, have slowly made their plates bigger by buying breweries and reorganizing them. These big companies have the advantages of management and capital, and the brewery transformed by them can successfully become the leader of the region. When the number of breweries reached a certain scale, China Resources and Qingdao cut off their redundant brands, leaving only a few head brands to be promoted throughout the country, thus realizing industrial integration.

In the last 10 years, although China Resources, Qingdao and Yanjing have occupied most of the market share, the competition between them continues. For fear of a decline in market share, everyone is very cautious about raising prices.

As a result, the tonnage price of domestic beer is only half of the international average, and the gross and net profit margins of leading wine companies China Resources and Qingdao are only 30% and 5% respectively, far lower than Budweiser's 60% and 15%.

Until the last two years, the pattern of the beer industry has gradually taken shape, with the market share of the top five in China Resources, Qingdao, Yanjing, Budweiser and Carlsberg rising to 75%. In the high-end beer market, Budweiser and Carlsberg formed a duopoly pattern; in the middle and low-end beer market, China Resources and Qingdao accounted for more than half of the market share.

Thanks to the improvement of the industry structure, China Resources Beer began to dare to raise prices, transferring the raw material costs of glass bottles and wheat upstream to the downstream; at the same time, closing factories with excess capacity, reducing costs, and through cooperation with Heineken China, try to tap the high-end beer market and improve overall profit margins.

In fact, this is also the growth route of Budweiser, the international beer overlord. The beer industry in the United States entered a boom after World War II, with a growth rate of more than 20%. Budweiser's market position also improved rapidly during this period, occupying the fourth position in the industry in 1947.

Budweiser established its brand advantage through successful television marketing in the 1950s and has been the No. 1 seller in the United States since 1957. But at that time, the market was still very chaotic. Budweiser, even if it was the first in the market, had a market share of only 16%.

In the 1980s, the beer industry was gradually saturated, and there was no breakthrough after reaching a peak of 23.8 gallons per capita. However, when the industry was saturated, Budweiser, the industry leader, began to squeeze the space of other competitors, with a rapid increase in market share from 28% to 41%, net profit margin from 5% to about 10%, and net profit quadrupled.

China Resources Beer's current state, both in terms of net profit margin and market share, is similar to that of Budweiser on the eve of its outbreak in the 1980s. Naturally, the market will also expect China Resources Beer to achieve high profit growth like Budweiser, so it is reasonable for the stock price to rise sharply.

In the future, if China Resources Beer can achieve a leading market share (about 40 per cent) and raise the net interest rate by raising prices (15 per cent), China Resources Beer's market capitalization will reach 300 billion yuan at 25 times the valuation of overseas markets, compared with China Resources Beer's current market capitalization of only 130 billion yuan.

This is the investment value brought by industry integration.

Summary

Although China Resources Beer's investment return is very rich, but on the whole, it is very difficult to invest in slow-growing industries.

First of all, there are few targets for high returns. There are 17 stocks in the alcohol sector of the Hong Kong stock market, and only China Resources Beer has made a handsome return.

The second is that the return depends on the operation of management. If China Resources management had not spun off its lossmaking retail food business and paid huge dividends in 2015, the return on the investment would have been greatly reduced.

Finally, valuation and performance always deviate. In the past five years, China Resources Beer's performance and indicators have not improved significantly, all the increases come from the market expectations of its prospects. To hold on to such stocks, investors need to look at the industry deep enough and far enough.

Therefore, if you want to outperform the stock god in terms of returns, investors had better not invest their money in slow-growing stocks unless there is a major change in the company's industry landscape.

After all, in slow-growing stocks, there are more pitfalls than gold.