For Cai Bin, not only buying low-valued stocks is called value investment, the essence of value investment is to use fundamentals to make investments. Similarly, growth stock investment is to buy companies whose performance is growing faster than nominal GDP, and growth stock investment is not just about buying emerging industries or investing in technology stocks. Cai Bin found that there are also a large number of undervalued growth stocks in China's traditional industries.

Cai Bin believes that good companies do not necessarily correspond to good stocks, and the price bought is also very important. Behind this, we need to judge the value of the company. if we misjudge the value of the company and buy it at a price much higher than the value of the company, it will result in a permanent loss.

He attaches great importance to the risk-return ratio of the portfolio and will dynamically adjust according to the expected rate of return of individual stocks, which also helps Cai Bin to obtain excess returns in different styles of market environment. In addition, Cai Bin's framework also attaches great importance to the increase of market share, preferring high-quality companies that can expand their market share.

Let's first share some "golden sentences" of investment from Cai Bin:

1. The core of the growth stock research framework is to judge the time dimension and the growth dimension.

2. Don't define growth with limited thinking. Growth has nothing to do with your industry, market capitalization, or even the growth rate of one or two quarters, so our choice of growth stocks is multi-industry.

3. I like those growing stocks whose market share can continue to increase.

4. A good company is not necessarily a good stock. We hope to buy the valuation is more reasonable, through the growth of the enterprise, can bring us double the income in the next 3-5 years.

5. I hope to make money not only for the growth of the enterprise, but also for the cycle.

6. We will buy some cyclical growth stocks with both Beta and Alpha characteristics. Because of their competitive advantages, these companies are able to achieve growth beyond the industry.

7. You don't have to make a choice among good companies that have a consensus in the market. I don't pay so much attention to the market style and will always maintain the risk-return ratio of the portfolio.

8. Some companies in the portfolio may benefit from the current style, or some companies may not benefit from the market style, but the ultimate income of a portfolio should come from the accumulation of individual stock Alpha.

9. For investment, I think it is a value investment based on fundamental research and enterprise value evaluation.

10. The biggest risk in investment is that it is too expensive to buy. If you use a high premium to buy a company, it may not bring a better rate of return.

An investment framework that combines growth and cycle

Juan: tell me how you understand investment.

Cai Bin:For investment, I think it is a value investment based on fundamental research and enterprise value evaluation.I think growth stock investment, periodic stock investment and value stock investment are all a kind of broad value investment in nature. The growth stock is optimistic about the value of enterprise growth, the value stock is the investment opportunity brought by the fluctuation of enterprise value, and the periodic stock is the investment opportunity based on periodic regression.

As long as it is invested with fundamentals, it is a kind of value investment, not just buying stocks with low valuation is called value investment.The core link of investment is how to do fundamental research and evaluate the value of related companies.

Zhu Ang: indeed, we have seen that you are one of the few fund managers who have both growth stocks and cyclical stocks. Can you talk about your investment framework?

Cai Bin:I really hope to earn the money for the growth of the enterprise and the money for the rotation of the cycle.The construction of this methodology is related to my background. I first looked at transportation and belonged to an industry with strong cyclical characteristics. Later, I also saw communications. In the era when 3G turned to 4G, it was a growing industry. It helps me understand both cyclical stocks and growth stocks, and I am willing to invest in both directions.

Let's start with growth stocks. My definition of growth stocks is somewhat different from that of the market. Many people think that the growth stock style is to buy emerging industries, or small stocks, gem.I think growth stocks, as a kind of company, should be viewed from the time dimension and growth dimension. If a company's income and profit compound growth rate is twice the nominal GDP, it can be defined as a growth stock, which is defined from the growth dimension. From the time dimension, some companies have a growth cycle of 3-5 years, while others have a longer growth cycle, which can reach 5-10 years.

Growth stocks have nothing to do with the industry, the market capitalization, or even the growth rate of one or two quarters. So my choice of growth stocks is multi-industry.Even if an industry is no longer growing, but the company can gain more market share and achieve value growth through its own competitiveness, then it is also a growth stock.

The perception of growth should also be adjusted dynamically, which does not mean that growth must be defined by a certain rate of growth. Some companies may be in the early investment period, resulting in slow profit growth, and then after entering the explosive period, profit growth will accelerate.

The core of the growth stock research framework is to judge the time dimension and the growth dimension.What is the level of profit growth of a company in the future and how long it can grow? This requires the prediction of various factors, such as the company's business model, product power, management entrepreneurship, the position of the enterprise in the industry and so on. Some companies can grow with the industry, while others can increase their market share at the mature stage of the industry.

When any prediction is right or wrong, what we need is to increase the probability of prediction through research, and to evaluate the current valuation and market capitalization to determine whether the price already includes expectations of future growth. Enjoyed a valuation premium. If it has been reflected in the price in advance, then the market capitalization may not increase in the future.

A good company is not necessarily a good stock. We hope to buy the valuation is more reasonable, through the growth of the enterprise, can bring us double the income in the next 3-5 years. This is my framework for growth stocks.

A good company is not necessarily a good stock.

Juan: you want to find stocks that have doubled their market capitalization. are there any characteristics of these stocks?

Cai Bin:These companies have to grow at an annualized rate of at least 15-20%, and of course many companies can achieve higher growth, reaching an annualized growth rate of 30-40%. The valuation should match the growth rate. Some companies are growing fast, but with full understanding of the market and high valuations, the matching degree may not be good.

From the point of view of characteristics, this kind of companies have strong competitiveness, can get more market share, and the company's share in the industry is not high.If it already accounts for 60% of the market share and the industry does not grow, the company may not grow much. If the company's market share is only 10-15%, we can judge to reach 30-40% market share in the future. This is the problem of judging the ceiling of a company.

The best growth stock is the high growth of the industry, and the company can be more certain to gain market share. But we often run into companies in the middle of the two. Some industries are growing very fast, but the concentration of the market is also very scattered, and I don't see any company that can be sure of gaining market share. Another is that the growth rate of the industry is very slow, but the market share of some leading companies is relatively certain to grow.

Then this is implemented in the perspective of the risk-return ratio of individual stocks.Some companies are really good, but their market capitalization and valuations are relatively high, such as spirits and condiments in food and beverages. On the other hand, there are still more than 4000 listed companies to choose from.You don't have to make a choice among good companies that have a consensus in the market.

Juan: this involves what you call a good company and a good stock?

Cai Bin:To use a reasonable valuation to buy good growth. Some good companies recognized by everyone today may have high valuations, so it is necessary to choose whether or not to accept such an expected rate of return. Suppose you can get 50% in three years, then it may also be a very good rate of return. In addition, there are some better companies, which may be related to the industry environment, and the corresponding valuation is not high, which can bring a better expected rate of return.

There are some good companies in the middle reaches of my position, such as excellent companies in chemical industry and machinery, which can participate in global competitive advantage.Although the industry is cyclical and looks more traditional, valuations are discounted, even lower than overseas competitors. In the past, home appliance enterprises showed this characteristic, their growth is better than overseas home appliance enterprises, and the valuation does not have any premium.

Holding such high-ROE growth companies at reasonable prices can continuously boost market capitalization through the company's annual profit returns. It is true that there have been such high-performance investment opportunities in the past few years, with little volatility and good returns.

Use part of the reverse investment to buy the cycle

Zhu Ang: after talking about the investment framework of growth stocks, let's talk about how you do cyclical stocks.

Cai Bin:Cyclical stocks will be easier to invest, and the boom in many cyclical industries fluctuates around prices, such as panels, farming, and upstream raw materials. We want to find companies whose industry is in the bottom-up stage and whose market capitalization is also in the bottom area. It also involves the question of valuation, what kind of valuation method to judge that the company is indeed in a bottom area.

With the recovery of the industry, the market capitalization of the company will return. Can earn cyclical money, will make a greater contribution to the net worth, but this kind of opportunity can not be found, and is not the main investment direction of the portfolio.

We seized the opportunity for steel supply-side reform in 2017, tapped an upward opportunity for the breeding cycle at the bottom of 2018, and found investment opportunities for cycle improvement in the panel industry in 2020.

Zhu Ang: periodic stock investment requires a certain amount of reverse, but the reverse is easy to make mistakes. How do you improve the winning rate of the reverse?

Cai Bin:I do do some reverse investment, and there will be some reverse investments not only in cyclical stocks, but also in some growing stocks.The reverse is when the market attention is not very high, the company is still in the growth or cycle before the outbreak of investment.In the initial stage, I will use some low positions to invest, by holding this target for more in-depth research and tracking, after all, with the position, the driving force of the research will be different. In this process, if the judgment is wrong, or the logic changes, it will stop the loss and profit in time.

If you find that you are right, you can increase the layout. Therefore, using small positions to try and make mistakes first is a better way to improve the winning rate, and the cost of trial and error is not high. With the further deepening of the research, we can increase the position in the right direction.

There are some opportunities to combine Beta and Alpha in traditional industries.

Juan: let's not talk about a specific case. How did you lay out the opportunities in the panel industry this year?

Cai Bin:We have seized the cyclical opportunities of the two-wave panel industry. The domestic panel industry has been investing in the past, resulting in global panel prices killing very badly, and everyone does not make money. After that, we saw that South Korean panel companies began to withdraw. The withdrawal of supply-side production capacity will lead to a rise in prices in the future.

At the same time, we use PB to value the enterprises with partial cycle, and find that these panel enterprises are in the position of the bottom of the valuation. Starting from our periodic stock investment framework, it meets two conditions for us to invest: 1) the industry is at the bottom of the cycle, capacity exit, prices may appear upward; 2) the valuation of the company is at the bottom.

The cyclicity of the panel is not as strong as that of upstream resource products, because the demand side is less cyclical due to the influence of consumer electronics and must-have consumer goods. This is an investment made with odds and odds. Judging from the time point at that time, the odds are high and the odds are good, and the risk-return ratio of this investment is appropriate. When the company returns to a reasonable market capitalization, we will choose to sell it.

Like,We will buy some cyclical growth stocks with both Beta and Alpha characteristics. Because of their competitive advantages, these companies are able to achieve growth beyond the industry.. Even we can see that in some times when the industry is losing money, this kind of company can still make a profit by relying on its own competitiveness, and the ROE is also very high.

Then if you layout at the low point of the industry cycle, you can enjoy the investment opportunities brought by both growth and cyclical rise of the company. In the field of mid-stream chemical industry and construction machinery, there are some periodic growth stocks with both Beta and Alpha characteristics.

Zhu Ang: judging from the public data, you have a steel company in your position. is the reason behind it based on cyclical investment or growth investment?

Cai Bin:This is a new material company that makes special steel, not a traditional iron and steel enterprise, and many of its products are customized. The company has strong bargaining power. From the perspective of industry development, the proportion of domestic special steel is still very low. Taking Japan and other developed countries as an example, the proportion will be greatly increased in the future.

The company's performance growth rate is about 15%, which is also in line with the investment target of our growth stocks. In the past few years, the company has been making technological breakthroughs and formed a relatively strong product competitiveness. Different from the view of the market, people will think that this is a partial cycle of the company, the valuation is too low. In fact, this is a cyclical growth stock in the industry, and I think there will be valuation repairs in the long run.

There are several growth stocks in cyclical industries in my portfolio, and the industry stages of these companies are different from each other. Some companies are at the bottom of the industry and are about to show an upward inflection point; some companies are at a more prosperous stage in the industry. What these companies have in common is that they are highly competitive around the world, have the ability to continue to grow Alpha, and can cross the industry cycle.

Pay attention to the risk-return ratio of the portfolio

Juan: I find that you have made excess returns in different styles of markets. how do you do that?

Cai Bin:In the years I have managed the portfolio, I have indeed experienced several different styles of market environment. For example, the gem market in 2015, the white horse blue chip in 2017, the big bear market in 2018, and the structural market in 2019. The portfolio I manage does make excess returns in different market styles.

I think the reason behind it may be that I pay less attention to the market style and choose individual stocks from the bottom up with a 3-5-year dimension. The varieties of these reserves in the combination are also in line with the later market style in different periods. Choose good companies with performance-to-price ratio from the bottom up, these good companies are in a relatively good stage of development. At the same time, when the valuation of the company is high, I will choose to sell and always maintain the risk-income ratio of the portfolio.

Over a long period of time, sustained performance growth is able to cross different market styles.On the contrary, it is difficult to predict the market style in advance, because there are many factors that affect the market style, such as macro environment, market environment, plate valuation and so on.

Another reason is that my combination will be moderately dispersed, scattered for different industries, but also for different styles. In the end, I want to build a combination that has the characteristics of Alpha.Some companies in the portfolio may benefit from the current style, or some companies may not benefit from the market style, but the ultimate income of a portfolio should come from the accumulation of individual stock Alpha.

Zhu Ang: your industry coverage is more balanced, how to grasp the breadth and depth?

Cai Bin:The research platform has helped me a lot in the coverage of individual stocks, the whole research team of Boshi Fund is very strong, and our integration of investment and research has also improved the efficiency of investment and research docking. The support of research platform can solve the problem of breadth. In terms of research depth, I think the main work of fund managers is to further implement their own in-depth understanding through the basic materials provided by researchers.

In addition, tracking ability is also important, which requires continuous tracking of the company's performance and the executive ability of management. I like to devote my energy to the study of the company's development path, and I may not devote so much time and energy to the details of measuring the growth rate of performance this year.

Juan: under what circumstances would you buy or sell a stock?

Cai Bin:I attach great importance to the risk-return ratio of the portfolio. One of the most important reasons for buying and selling stocks is to adjust the risk-return ratio.Suppose a company I think will double in the next 3-5 years, and the company will grow by 50% in half a year, then I will make an evaluation. If the risk-return ratio is no longer appropriate, or if I find a company with a better risk-return ratio, then I will make some swaps.

Of course, another reason to sell is to read it wrong. If I see something wrong with the investment logic, I will sell it, too. On the whole, my combination is relatively balanced and moderate in concentration.

Zhu Ang: from your combination, unlike the traditional growth stock players, the proportion of consumption and medicine is not high. What is the reason behind it?

Cai Bin:I am also reflecting on this issue myself. Consumption and medicine are indeed very good industries. I think it still has something to do with my investment framework.I like those growth stocks whose market share can continue to increase. In these two industries, market share may not be the most important factor.Another reason is the expected rate of return, some companies I think the expected rate of return is not very attractive.

I am now also increasing the research on consumer goods, this industry does have a strong certainty, the dimension of sustainable growth may not be 3-5 years, but 10-20 years. Under this framework, it is not to earn twice as much in three years, but to steadily get a rate of return of more than ten percent every year. This is really different from my previous growth stock and cyclical stock framework, and it is not judged by market share or ceiling.

The biggest risk in investment is that it is too expensive.

Zhu Ang: looking forward to the future market, what directions do you like?

Cai Bin:I have been optimistic about the main line of China's industrial upgrading since 2014.The core reason is that China's labor costs will continue to rise, so it is necessary to improve production efficiency, the integration of information and industrialization is an inevitable trend, leading to continuous industrial upgrading.

We have been a big manufacturing country in the past few years, but we are not yet a manufacturing power. In the process of China becoming a manufacturing power, these competitive companies, which have a long-term growth track, will first gain market share through import substitution and then global market share.

In fact, import substitution in the domestic market alone can bring a lot of room for development, from new materials, semiconductors, to new energy, and so on, along the trend of industrial upgrading.

Another area that I am more optimistic about is industrial services. At present, the market share is still relatively scattered, and with the progress of technology, the market share will continue to concentrate.

But in the process of building a portfolio, I still value a good company and a good price, and I must buy a good company with a reasonable valuation. A good company does not necessarily represent a good stock. If you use a high premium to buy a company, it may not bring a better rate of return. This is like anything we buy, it has a value. It may not be appropriate to buy it at a price higher than the value.

The risk in the investment is also bought at a price higher than the actual value of the company, and if the company fails to return the price you bought, it will result in an actual loss.Therefore, when I buy the company, I still hope to have some safety pads. In a low-risk way, to get a return.

Juan: are there any leaps or mutations in your investment career?

Cai Bin:My growth has been slowly changing, and there is no special leap. I was lucky. I made investments relatively smoothly, and I never encountered any special difficulties. I think investment needs to be accumulated and expanded slowly.

In terms of investment methods, it is also in the process of continuous improvement. At first, I didn't think about looking at the 3-year dimension, because our assessment period is not that long. Later, I came to understand that we should use a longer vision to make a value judgment. For example, new energy vehicles must be viewed in a time dimension of 5-10 years, and it is impossible to buy them in a short period of 1-2 years. For example, some consumer goods may use the time dimension of 50 years to make value judgment.

Juan: what do you want to do more and what do you want to do less?

Cai Bin:I want to do more research on industries and companies and look less at stocks and transactions.

Zhu Ang: what would you do if you didn't become a fund manager?

Cai Bin:My daughter asked me the other day, "what is your ambition and what kind of person do you want to be?" "I thought about it for a long time, and then I decided that investing was one of my favorite things to do.

But if I'm not a fund manager, I especially want to follow the FOF team to research other fund managers, just like you're doing right now. I think it is very interesting to understand the investment ideas of different fund managers and the way they look at things. Then invest, go to buy their fund.

In fact, I think individual stock speculation is very difficult, if I do not have the support of the investment and research platform, for me personally, buying a fund should be a better way to invest.