On September 19, the stock price of the 'stock king' Kweichow Moutai in A-shares once fell below 1250 yuan, and the market sentiment hit rock bottom, causing baijiu investors to suffer. Some retail investors asked the 'Chinese Warren Buffett' Duan Yongping on social media platforms, how does he view the current situation of Moutai?

Duan Yongping unequivocally supported Moutai, saying that as long as you treat these two investment strategies as if you've deposited money in the bank, you will think you made the right decision in 10 or 20 years. Perhaps looking back in 20 years, Moutai should be much better than gold!

Shortly after Duan Yongping's remarks, Moutai started a soaring trend on September 24, skyrocketing nearly 30% in just 4 trading days, and now the stock price has risen above 1600 yuan.

Clearly, this time Duan Yongping made the right bet and won big.

01

Duan Yongping is one of the rare individuals in the Chinese investment world who can become a master-level figure, and his investment journey is mainly divided into two stages.

The first stage began in 2001, heavily investing in Netease, with a market cap of 20-30 million USD, bought in at 0.25 USD, sold at 30-35 USD, making over 100 times profit. In the following years, he successively intervened in American trailer rental companies, Skyworth, Vanke, General Electric, making profits of 20 times, 5 times, 6 times, 2.5 times respectively.

His investment style in this stage was quite aggressive, achieving high short-term returns and decisively exiting investments, then continuing to choose more attractive leading companies.

The second stage began in 2011, when Duan Yongping's investment strategy underwent a major transformation, deeply understanding a company and then heavily holding it for the long term, achieving even more brilliant accomplishments.

In 2011, Duan Yongping boldly held a large position in Apple. At that time, Apple's market cap was less than 300 billion USD, he bought it at 11 USD and has held it ever since. This is his most successful and profitable large investment.

In 2013, he heavily held Moutai, and has continued to hold it since. At that time, amidst the frugality policy, Jiugui liquor plasticizer incident, and the continuous bearish trend of the large cap market, Moutai's valuation once dropped to below 10 times, causing widespread panic in the market. However, he chose to go against the trend.

In 2015, he invested as an angel investor in PDD, making an estimated profit of 1000-2000 times. In 2018, he bought Tencent, PDD, and Facebook. Since then, he has made fewer transactions.

As of the end of the second quarter of 2024, Duan Yongping once again managed the investment account “H&H International Investment”, holding a total of 9 US stocks with a holding market cap of $16.6 billion, equivalent to approximately 119 billion RMB. Compared to the first quarter, the account expanded by 17%, mainly due to contributions from Apple, which saw a 23% surge in stock price in the second quarter.

Specifically, the market value of holding Apple reaches as high as $13.464 billion, accounting for 80.95% of the total managed account, while the remaining 8 US stocks including Berkshire Hathaway, Google, and Alibaba have holdings in the single digits percentage-wise.

(H&H International Investment stock holdings details, source: Evolution ETF)

In addition to US stocks, Duan Yongping also revealed that his Hong Kong stock investments are mainly focused on Tencent, while his A-share investments are mainly in Kweichow Moutai. It can be seen that he heavily allocates holdings to the three major markets' widely recognized absolute outstanding companies, holds them for the long term, and has gained significant returns.

However, Duan Yongping has also had investment failures, such as shorting Baidu in the past, resulting in losses of $0.15-0.2 billion. Since then, he has learned a valuable lesson, similar to Buffett, no longer seeking gains from shorting, and has embarked on the value investing path.

Looking at Duan Yongping's successful investment experiences, a deep understanding of the company and forward-looking judgment are crucial. Once chosen, holding for the long term can yield high returns, and exceptional companies should not be easily sold off.

He has shared on social platforms that buying stocks means buying companies, buying companies means buying their future discounted cash flows, which are free cash flows, not constrained cash. A good business model can ensure future cash flows, and a wide moat can safeguard unrestricted free cash. Investing using this approach may result in countless missed opportunities, but it also reduces the chances of making major errors.

He holds significant positions in Apple and Kweichow Moutai, which is a typical case. Since the launch of the iPhone, Apple has established a relatively strong moat through its operating system and brand, growing from a medium-sized mobile phone company to the highest market cap technology company globally. Although current growth is limited and facing a mid-life crisis, its core competitiveness remains strong.

Looking at Kweichow Moutai again, its business model may be even better than Apple's. In the super high-end baijiu sector, Moutai has a deep moat with a market share of over 60%, no other competitors can rival it. It can also release products in the thousand yuan price range to compete with Wuliangye Yibin and Luzhou Laojiao. Moreover, it has very high profitability, with a long-term gross margin of over 90% and a net margin of over 52%. More importantly, despite decades of growth in performance, it is currently able to maintain double-digit growth.

However, Moutai's situation in the A-share market is not as favorable as Apple's in the US stock market, going back and forth around 3000 points to defend its position, leading to frequent fluctuations in Moutai's valuation levels. Before the sharp rise on September 24th, Moutai's PE was less than 20 times, at a low level in nearly a decade, significantly undervalued. This is also why Moutai shows extremely good resilience once the market warms up.

02

In a previous article titled 'Not Even Baijiu Faith Can Endure,' I mentioned that sales in the baijiu industry were very weak and bleak before the Mid-Autumn Festival, the overall environment was tough, leading the market to lose confidence in baijiu consumption, resulting in baijiu being abandoned by the market. Even last week, Moutai's scalper acquisition prices plummeted by several hundred yuan within a few days, to the point where even scalpers hesitated to buy, showing extreme desolation.

The article also mentioned that baijiu has the bottom-driving force to withstand cycles, stemming from an excellent business model and long-term relatively good growth prospects. At that time, baijiu valuation had fallen to 16.5 times, approaching the most pessimistic point in 2013, with a strong rebound appeal, worth patiently waiting for the return of the baijiu cycle.

Just did not expect that now, with an unprecedented 'royal flush' stimulus, all the logic is changing rapidly. Even the previously overlooked baijiu industry has become a star sector sought after by assets.

Of course, there are also positive factors within the industry, such as Hong Kong's plan to reduce spirit taxes, hoping to reshape Hong Kong as the preferred destination for nightlife, dining, and shopping, stimulating violent surges in Hong Kong's pub stocks and driving up baijiu stocks in the A-share market.

However, in fact, the industry logic of the baijiu sector up to now is still difficult to prove. The biggest driving force behind the market's expectation reversal for the baijiu sector at the moment lies in external factors, namely the reconsideration and reflection of the decision-making level on the consumption environment and policies. Policies have seen more powerful and targeted changes, coupled with the rocket-like surge in the stock market, boosting the confidence of all investors, thereby providing a solid foundation for consumption, and potentially bringing bullish prospects for baijiu consumption.

Therefore, following the rare large rebound climax of the baijiu sector, subsequent fluctuations may show differentiation, requiring close attention to market changes.

Lastly, a reminder that in a bull market, most companies are likely to eventually experience a rise. However, without grasping the rhythm to follow the uptrend and sell at the downtrend, one may easily lose focus and end up with mixed results. Despite gaining from the index in a bull market, investors still need to better control their pace and positions. (End of full text)