01

The two ends of an investment are analysis and trading, and what connects the two ends is waiting. The core of investment analysis is business understanding and probabilistic thinking; the core of investment trading is odds and reverse thinking; the core of waiting is adhering to the circle of ability and respecting common sense. In the long run, good deals can't save bad analysis, but good analysis can ruin bad deals. However, in contrast, the hardest part was learning to wait (whether holding shares or coins).

Investment performance is a hindsight, but the medium- to long-term probabilities and odds of each investment can be determined in advance. Excellent performance is only a result; the reason for this result is essential.

Hard work, talent, and luck are probably the 3 most important reasons: working in the right direction gives you a lower limit of success, talent determines the efficiency and time cost of growth, and luck always surprises those who stick to the right things.

Successful investors are not so much good at calculation and choice as they know how to give up and persevere. It's not so much about being able to listen and listen to all sides of the world; rather, it's about staying focused without hesitation; rather, it's about being able to see your own limitations more deeply and clearly know what you can do and what you can't do in the market. The so-called investment gods are not that they have obtained a mysterious apocalypse; they are simply loyal to compound interest and practice it forever.

Everyone who knows compound interest knows that there is a contradiction between the sustainability and profitability of compound interest (this is similar to ROE). High compound interest cannot be combined with a long cycle. Among them, Buffett's 50 years of nearly 25% is the current limit for humans (those who only look at high compound interest without looking at time are called defeating Buffett; they have hardly touched the investment).

A return to the average after high compound interest is inevitable. Among these, there are both objective and subjective factors. The best scenario in an investment career is: high initial compound interest, then steady but extremely sustainable.

02

It is particularly easy to invest in “building the perfect system” at some stage, yet this is not much different from a lifelong commitment to manufacturing permanent motors. The more complex the system and the more obsessed the details, the farther away it is from the essence of investment.

The longer you invest, the more you can appreciate it. What you can rely on is a simple and simple methodology that hits the essence, and what you should pay the most attention to is the overall pattern and strategic success.

For an investor, one of the more dangerous situations is to have an early sense of “having the truth in your hands.” If they get bored at the same time or compete for strength and victory, they criticize those who are slightly different; that basically means there isn't much room for improvement.

Of course, there is an unshakable basic principle of investing, but there is no “sacred model” for the weight of the different elements of investment. Of course, this isn't about thinking differently; it's about keeping an open mind; in fact, it's also an ability.

Is concentration or dispersion better? If you think about it from a specific phased perspective, it depends on which is more important to you, fish (elasticity) or bear paws (safety).

If considered the long-term norm, concentration seems to represent a high level of confidence in company exploration and analysis. But on second thought, if you were really that confident, you should be able to find more excellent targets and distribute them moderately.

Of course, this is essentially a question of degree. Ultimately, the focus is on matching the depth of research with position efficiency, and the moderation of investment flexibility and risk diversification.

03

There are many elements involved in the investment decision process, but if refined and summarized, there are probably three most critical points:

1. Overall view. It's about knowing where you are in the entire market cycle, whether it's fear, greed, or numbness;

2. Value judgment. The bet is to target the target in the future advantage category and make friends with time;

3. Poor expectations. Clarify the assumptions of value judgments and the expectations included in the valuation, and maintain sensitivity when the timing of high expectations differences occurs.

04

Investment myths are full of stories of 100 battles and 100 victories, but the reality is actually very sad. Even Buffett admits to constantly making mistakes. But why is it that when some people make mistakes, they are fatal, and others don't cause serious losses? The difference is:

1. Subjectively, do you acknowledge that you are an ordinary person who makes mistakes?

2. Objectively, are you good at using safety margins to protect yourself?

3. Are risks diversified and made up for with good odds? So the loss depends on incorrect pre-processing.

Judging from the formula PB = PE*ROE, when ROE = 8%, even though PE is 35 times, PB is only 2.8 times. If the company can continue to grow and the ROE increases to 25%, then when PE is 25, PB will increase 6.25 times.

It can be seen from this that PE reflects the expected premium, while PB reflects the asset premium. Usually, the expected reflection is much earlier than the actual change in ROE, while PB is relatively synchronized or lagging behind the change in ROE.

It can also be understood from this that the changing trend of ROE itself is the core element of valuation. The biggest mystery of valuation is not a simple addition, subtraction, multiplication, and division of indicators, but rather a forward-looking judgment on the future profitability of an enterprise, which is the accuracy of the company's operating stage.

The so-called vague accuracy actually means that specific PE and PB can be relatively vague (or targeted analysis), but ROE trend judgments must be correct.

A high ROE is a reflection of a company's profitability, and a high and sustainable ROE is a reflection of the company's strong competitive advantage. Well, in the vast majority of cases, a capital premium, or higher PB, must be given to such a good corporate market.

If a high ROE company has a very low PB, think about why? Possibly: 1. The market is a fool; 2. The essence of the company is a strong cycle and is currently at an inflection point at the peak of profit. This kind of conflict happens by chance, but in common situations, high ROE and low PB are essentially contradictory.

05

In investing in this field, “dancing in shackles” is probably not a kind of restriction but a protective mechanism. The most typical example is what Lao Ba said, “You only drill 20 holes in a lifetime,” and the most common fixed investment index fund.

It seems that these acts are highly restricted, but after a long period of time, it is often discovered that “shackles” actually turn into gold bracelets. This is actually also the reason why the vast majority of people's “free movement” can't beat their own virtual disk.

Companies that can constantly bring in new expectations are often favored by the market. However, there are two types of situations: one is that the new expectations revolve around the strengthening of the main business or the upgrading of the industrial chain, and the main expectations are continuously “fulfilled”, which is a good seed for excellent or even great companies; the other is that new expectations span a large span and like to follow the trend, and always use new expectations to cover up unfulfilled old expectations. This is a seed player for unreliable or even old companies.

As far as the relative relationship between a company and price is concerned, buying a company at a static higher price is not the best policy, but it's not the scariest. In particular, if this company continues to get cheaper in the future, it can turn into a good investment.

What I'm most afraid of is that it was very cheap when I bought it, but the more I bought it, the more expensive it became. This shows that the buying logic is fundamentally wrong. The most important thing in this situation is the ability to correct errors quickly; otherwise, the time and cost of waiting for the errors to settle down is very expensive, making people cry.

At first, it may seem difficult for efficient management companies to have obvious barriers, but this kind of efficient management may change quantitatively to qualitatively, thereby forming real high barriers based on scale or technology and customer stickiness, but by the time all of this is confirmed, they are often close to maturity. For this type of company, the most important thing in the early to middle stages is to grasp three points: 1. Long-term demand expansion; 2. A focused team with strong industrial ambitions; and 3, the ability to continuously “do what you say”.

The deterioration of the balance sheet is qualitatively not a good thing, but the causes of its deterioration need to be viewed in half. One was accompanied by a marked decline in revenue growth, as well as abnormalities in accounts receivable and inventory during the same period; the other was a rapid increase in revenue, but the need for early capital advances or insufficient economies of scale led to a sharp rise in debt ratios and deterioration in cash flow.

The former often indicates that the income side will face worse results in the later stages of credit easing to the limit; the latter, on the contrary, is due to the rapid explosion of demand that exceeds the ability to absorb current capital.

06

Today I saw a sentence: “What is a limitation? The limitation is that if they cut firewood, they think the emperor is burdened with gold.” It's really perfect.

Next to the topic above, if you want to learn successful value investing, don't memorize Buffett's tips every day; if you want to start a business, don't read all kinds of success studies every day, what you need to gather the most is how everyone has failed. A person who has not thoroughly studied all kinds of failure cases cannot succeed. Those just tell you every day that “so is good; if you do something, you will have a new and great success”; they are either nerds or liars.

In the bull market, everyone was talking about high elasticity. After several rounds of stock disasters, they began to pay attention to “how to avoid net worth fluctuations.” In fact, net worth retracement itself is a by-product of market fluctuations; completely rejecting retracement is tantamount to antagonizing investment.

But the same fluctuation has a very different meaning in different contexts: the tendency in a bubble environment should be to reject fluctuation; in an underestimated environment, you need to embrace fluctuation; in the vast majority of unknown environments, what you need is to endure fluctuations.

One book says, “The mediocre general, when faced with a complicated environment, will list himself a bunch of difficult questions and question marks. He is so overwhelmed that he can't find the North. Real generals are quick to cut through chaos, see the essence and key points at a glance from what seems to be normal, and act boldly.” This is actually the same thing as investment decisions. Excellent investors are good at grasping major contradictions, both for the market and for the company, and can see the whole in detail and ultimately form a “logical fulcrum” for decision-making.

From a valuation perspective, my first fear is not that it is expensive, but that value is difficult to measure. The core of what is difficult to measure is either too many variables or too far from the boundary of ability; the second fear is not that it is expensive, but that it is a cheap trap.

It seems cheap and easy to beat, but once it turns out to be a trap, it's a big loss. If all other factors are more certain, then “expensive” is actually a very simple question, at least easy to measure. However, it is fatal that important assumptions of valuation are unclear or overturned.

07

You only need to work hard for many things. There is no credit and hard work. Hard work will provide a basic income guarantee. But the cruelty and simplicity of investing is that it never asks you how much you spend, but only whether you're right or wrong. In this category of work, effort comes second, and the first place is correct values and methodologies. Otherwise, the direction is wrong. The more diligent you are, the more difficult it is, and the more obsessed, the crazier it becomes.

It's also luck. Most investors seem right because of good luck, while veteran investors often get good luck by getting it right. The former is random and passive, while the latter is highly probabilistic and active.

It is normal for a person's investment performance to be lucky once or twice. But if it always seems like you're lucky, then there must be a factor that attracts good luck called “ability.” One sign of investment enlightenment is learning to distinguish between ability and luck.

Editor/Jeffrey