On June 22, 2006, the new round of "lunch with Buffett" began at eBay auction. After eight days, a netizen named "Fast is slow" finally offered an all-time high of $620100 to finalize the lunch. Two days later, I found out that this "Fast is slow" was Duan Yongping, the founder of Bubugao, and he became the first Chinese to have dinner with Buffett.

This meal can only take seven people. Duan Yongping brought not only his own son, but also Huang Zheng, who was a code farmer in Alphabet Inc-CL C.Years later, Huang Zheng recalled: "the greatest significance of this meal to me is to realize the power of simplicity and common sense." "This power of simplicity and common sense led Huang Zheng to establish Pinduoduo ten years later.On the other hand, Duan Yongping, who paid for lunch, learned another truth from "the power of common sense"-buying Maotai.

In 2014, when Maotai leaders were worried about sales due to eight regulations, Duan Yongping heavily bought Maotai shares, when the city was worth only more than 100 billion yuan. Since then Duan Yongping A shares held for a long time, basically only Maotai. Whenever the market value of Maotai stock or Apple Inc stock reaches a new high, Duan Yongping will open the bottle of Maotai for 30 years to celebrate. Six years later, the total market capitalization of Maotai has already exceeded one trillion yuan, surpassing not only Buffett's beloved Coca-Cola Company, but also Industrial and Commercial Bank of China.

Whether it is an epidemic or an economic depression, the first holy water in the universe has become a cyclical belief.As Duan Yongping commented on Maotai in 2017: "Ten years later, people will still say that the price ten years ago was really not expensive." "

Why on earth is Maotai?

How does Part.1 Maotai become the King of Liquor

Maotai was not the trump card of high-end spirits in China at the beginning of its establishment. Since the founding of the people's Republic of China, the leader of China's liquor industry has changed ownership four times: from Luzhou laojiao to Shanxi Fen Liquor, and then to Wuliangye, it is Maotai's turn to dominate after many baptism. No matter how the liquor leader changes ownership, the high-end liquor industry runs through a rule: the higher the price, the better the brand. Therefore, the aroma of Chinese liquor is not afraid of the deep alley, but the price is not high enough.

After the founding of the people's Republic of China, Luzhou laojiao used to be the number one in the high-end liquor industry, but after the State Council liberalized the price restrictions on famous spirits in 1988, Luzhou laojiao put forward the strategy of "changing famous spirits into people's spirits" and took the initiative to reduce prices and break away from the camp of high-end spirits.

Luzhou laojiao embraced the civilian liquor market, and the first brand in the high-end liquor market became Shanxi Fen Liquor. In that era of insufficient grain production, Fenjiu went hand in hand in price because of its advantages such as low grain consumption and short production cycle. However, with the sharp rise in the price of liquor raw materials in 1993, Fenjiu decided to take advantage of the opportunity to reduce prices to seize market share. As a result, the law of "the higher the price, the better the brand" worked again. The factory delivery price of Wuliangye exceeded that of Fenjiu. Fenjiu has also lost the top spot of high-end liquor.

After reaching the top of the industry, Wuliangye has made continuous efforts to increase prices and expand production, but its OEM brand diversification strategy helps to consume the low-quality liquor base attached to Luzhou-flavor liquor production, but the low-end products have also overdrawn the brand, coupled with various corporate governance problems, Wuliangye development is weak.

Maotai seized the gap of Wuliangye's weak growth, took advantage of the opportunity to overtake the stage, and since then opened the way to three price increases of "cosmic divine water":

From 2000 to 2007, Maotai experienced the first round of rising cycle, the terminal transaction price surpassed Wuliangye in 2007, and the ex-factory price surpassed Wuliangye in 2008, becoming the first brand of high-end liquor in China. The 2008 financial crisis ended the first round of liquor bull market, China's economy was hit hard, the performance of liquor stocks generally slowed or negative growth, Maotai entered the first downward cycle, share prices fell by more than half.

From 2008 to 2012, Maotai ushered in the second round of bull market. In 2008, the vigorous "4 trillion" began, the government-led investment activities started the political demand for liquor, and the demand for high-end liquor as a social gift ushered in a brilliant moment. Maotai, which is born with the red gene, has benefited a lot from this round of rising government demand.

The good times will not last long. From 2012 to 2014, the state issued a "three public" policy to restrict government consumption. For the liquor industry, which enjoys political consumption dividends and happy growth in the "4 trillion" infrastructure frenzy, it is a thunder that marks the beginning of the market decline. Coupled with the 2012 alcoholic liquor plasticizer storm, Maotai suffered a double blow and the stock price was halved.

Duan Yongping set his sights on the 2014 low and bought Maotai. In the cold winter of the industry, the government consumption of the liquor industry shrank, high-end liquor brands have turned to tap the mass market, Wuliangye change strategy began to take the "people's wine" route. Maotai also made great efforts to attract investment into the mass market, but Maotai clenched its teeth to stabilize the ex-factory price and stuck to its high-end position.

Maotai, which has survived this cold winter, has further widened the price gap with Wuliangye and other high-end wines in the eyes of consumers. "the higher the price is, the more fragrant the brand is." Maotai's high-end brand positioning has since been unrivalled, and through investment promotion and channel sinking, the consumer groups touched by the products have also been expanded in a new round to pave the way for the next bull market.

Yuan Renguo, then chairman of Maotai, said passionately in the CCTV anti-corruption documentary "always on the Road": "it is the anti-corruption that has saved Maotai. Maotai's share of official consumption has dropped from more than 30% to less than 1%. Has successfully shifted from official consumption to public consumption. "

From 2015 to 2018, Maotai entered the third round of bull market: in 2015, house prices in major cities began to stabilize and rise, and the inflection point of Maotai prices soon appeared half a year later, and housing prices became the leading indicator of Maotai prices. this is because the rise in house prices has brought wealth effect to residents, and after the rise in house prices, people find that their prices have risen and their motivation to spend money has increased, which has greatly stimulated the demand of spirits, especially in the high-end liquor industry.

At this time, the high-end brand status that Maotai maintained in the cold winter of the industry where the government restricted "Sangong" consumption has been realized, and the demand for high-end wine from private consumption has gone to Maotai. The expansion of demand from private consumption has pushed up wine prices, and the law of "the higher the price, the better the brand" has begun to play a role again. After house prices stabilized and rose for half a year in 2015, Maotai also opened the third round of bull market. At this time, Maotai's position in the high-end wine market has skyrocketed and the world is invincible.

Since the second half of 2018, China has promoted the macro "deleveraging" policy, the real estate tide has receded, house prices have stopped rising, the impact of the Sino-US "trade war" on the economy and demand has been superimposed, and liquor demand has slowed down. coupled with the increased uncertainty about the economic outlook in the capital market, the valuation of liquor enterprises has fallen again and again, and Maotai inevitably entered the third downward cycle along with the industry.

Three ups and downs, will there be another round in Maotai?

Part.2 everything, good Maotai?

From the development law of the leading iteration in the liquor industry in history, we can sum up the law of "the higher the price, the better the brand" of high-end liquor. In observing the later development process of Maotai, we will find that the price "more and more buy" phenomenon appeared in the development of Maotai itself.

Looking back at the historical data of Maotai's approval price and stock price, we will find that Maotai's price is about a month ahead of the stock price, that is, the higher the price of Maotai, the harder investors will buy Maotai shares.

This is because the wholesale price is an indicator of the prosperity of Maotai demand:

Maotai liquor dealers pick up goods on a monthly basis, so the wholesale price of Maotai can be adjusted in real time under the influence of market demand, which is the data that can best reflect the prosperity of high-end liquor demand, and can be used as a leading indicator of the liquor market. Once the market observes the change of Maotai wholesale price, the stock price will begin to react immediately. The rise in the wholesale price of Maotai reflects a good market economy, so the higher the share price of Maotai, the more optimistic investors' expectations are, the higher the share price will be.

By observing the relationship between the price and inventory of Maotai in the past few years, we will find that the relationship between the two is accompanied by changes in the same direction, and the inventory also rises rapidly to the high point after the price reaches the high. in other words, there is a phenomenon of "more and more buying" in the Maotai liquor market.

For example, Maotai raised a round of price increases in 2016, while dealers are still rushing to restock. It turned out that in early 2016, Maotai visited dealers intensively and hinted to them that the supply of Moutai was limited in the second half of the year. As a result, suppliers began to scramble to hoard inventory, and the supply gap continued to widen. As a result, the inventory of suppliers increased while the price of Maotai also rose.

When Maotai inventory reached a low point, insufficient inventory also led to dealers eager to order and lock goods, which also led to the situation of "more and more buying". In the positive correlation between Maotai liquor price and stock price, Maotai liquor itself has become an important driving force with the attribute of luxury goods.

From the consumer's point of view, the shelf life of high-end liquor is long and relatively scarce, so it is a luxury that can be collected, so the price of high-end liquor is of course rising and keeping its value, while Maotai is the number one brand of high-end liquor in China. on the contrary, the rise in prices has further stimulated consumers' enthusiasm for hoarding goods.

Because Maotai liquor is collectible, rare and value-preserving, Maotai liquor has also developed a unique financial attribute in addition to consumption attributes. With the financial attribute of Maotai, there are three main ways to play:

1. Risk aversion: investors buy Moutai in advance to protect against the risk of inflation or price increases due to expectations of higher CPI or fear of future price increases.

two。 Arbitrage: some dealers think that the current price of Maotai is undervalued and will rise in the short term, so they hoard goods in advance and expect to earn the price difference.

3. Collection investment: it is the need to collect Maotai like collecting commemorative coins, and some people will collect and invest Maotai at an acceptable price out of hobby.

The consequence of financial attributes is an increase in leverage, which eventually leverages huge inventories:

With the expectation that the price of Maotai liquor is "easy to rise but difficult to fall", after people borrow money to buy Maotai, they can double the funds to buy more Maotai with leveraged mortgage, and then go to buy Moutai. The small principal leveraged to move the huge inventory, resulting in a huge increase in inventory of Maotai, further magnifying the phenomenon of "more and more buying" in Maotai. Finally, it aggravates the phenomenon that Maotai liquor "goes up and sells more and more" and goes hand in hand with inventory cycle and price cycle.

There was a Nobel problem in China, known as the "cottage dilemma". Should you buy Maotai or a house if you have the money? Now Maotai stock has written a gorgeous answer to this question: the compound return of Maotai stock exceeds not only gold, but also house prices in Beijing, making it the "king of risk aversion".

How much longer can Part.3 Maotai rise?

Duan Yongping said that "Maotai can rise for another 10 years." ordinary people in the fourth cycle have only one question in the face of an economic slowdown: where is Maotai's next growth point with such a high market capitalization?

The main market of the liquor industry is the domestic market, that is to say, the demand of the liquor industry mainly comes from domestic demand, the first stock of authentic domestic demand.

Since 2012, the main demand of China's liquor industry has shifted from the government demand which is greatly affected by the macro-economy to the resident demand. So can the demand of residents support the new rising cycle of Maotai?

This problem should be viewed from the two aspects of residents' spending power and consumption willingness:

First of all, Maotai is mainly targeted at middle-class consumers, who have the ability to consume high-end spirits such as Maotai and are the main buyers of Maotai. According to the estimation of different international and domestic institutions, the middle class group in our country is constantly expanding. According to their forecasts, the number of the middle class is expected to grow at between 6.9% and 14.0% a year, with a median of about 10%.[1]. The ever-expanding middle class will directly boost demand in Maotai.

In addition, because the aforementioned Maotai liquor has the consumption characteristic of "the more it goes up, the more it buys", the rise in wine price can increase the consumption demand of residents with various purposes to Maotai, and the increase in demand can push up the price of Maotai liquor. as a result, sustainable consumers' willingness to buy has been formed.

"the more you go up, the more you buy" leads to "endless buying", which creates a rising space for Maotai liquor, and the price can maintain an upward trend.

The consumer goods industry has always been relatively less affected by the economic cycle, and the growth of the leader tends to pass through the cycle and become the "champion" in the long-distance race of history: according to the statistics of "the Future of investors", in the 50 years from 1957 to 2003, 11 of the top 20 stocks with the highest annualized returns in the United States come from consumer goods.

The two consumer goods companies at the top of the list are leaders in their respective industries:

Philip. Morris is the largest tobacco company in the world today. Across the long river of history, for the past 50 years, Philip. Morris shares have an annualized return of nearly 20%.

Coca-Cola Company is the leader of the soda industry in the United States and even in the world. Coca-Cola Company's share price has continued to rise far more than the S & P 500 index over the past 50 years, with an annualized return of 16.02%.

Similar to Duan Yongping's insistence on holding Maotai, Coca-Cola Company's loyal "fan" is Buffett. Investing in Coca-Cola Company is also one of Buffett's most legendary and successful stock investments: Buffett has increased his holdings many times since he began to buy Coca-Cola Company shares in 1988 and has earned 10 times in 10 years. In Buffett's investment, Coca-Cola Company's stock alone earned Buffett $10 billion.

Of all the first-tier industries in A shares since 2004, the food and beverage sector in the consumer industry has risen first, with an annualized increase of 22% over the past 15 years, while the second-tier food and beverage industry is the liquor industry, with a 44-fold increase in 15 years, which is rare in the global consumer goods investment market.[2]. Maotai became the A-share long-distance running champion, and Ren BABA and Tencent disturbed one after another: everyone fell, but I rose alone.

Maotai has deserved to become the king of Chinese shares, and behind "everything is good for Maotai", it is actually contained in four words: bullish on China.

With the trade friction between China and the United States becoming more and more difficult to adjust, the external environment is becoming more and more misty. At a time when it is better to ask for help than to ask for yourself, tapping domestic demand and consumption is the inflection point of China's economic recovery. Maotai, on the other hand, is the strongest proof of being bullish on China.