Research is not only the cost of investment, but also ROI.

The topic should start with the recent abandonment of "small market capitalization companies".

There are many reasons why small market capitalization companies are abandoned by institutions, and the low efficiency of research is one of them.

Many people think that there are too many people in large institutions, so how can they fail to study them? In fact, institutional coverage of a company is not as simple as retail investors. for a new company that does not have any institutional coverage, from research to final conclusion (many cannot produce a report), it takes a month or two to be more rigorous. A large amount of manpower and material resources can not go wrong. Last month, a famous institutional researcher was punished by the CSRC for data errors quoted in the report.

On the contrary, large market capitalization companies have a large number of institutional research results, standing on the shoulders of the public, finding that changes that the market does not notice is a relatively low-cost approach.

Small market capitalization companies invest a lot in research, but they can't buy too many positions, and the return is not as high as that of big companies.

The purpose of this example is to illustrate the important theme of this article:

Research is neither the more the better, nor the deeper the better. Research is the cost of investment, and we should also talk about ROI. Even large organizations have to give up some opportunities. Therefore, individual investors must choose between "in-depth research" and "breadth of coverage".

More importantly, the two research systems of "in-depth research" and "breadth coverage" are closely related to the trading system mentioned earlier.

Advantages and disadvantages of in-depth research

First look at the advantages and disadvantages of in-depth research in this direction.

A deep researcher, the depth of the research on a company at least includes: industry background and trend, the context of the company's development, the company's main business and products and their competitive advantages, the competitive pattern of all kinds of business, the company's main financial situation, the company's governance structure, the company's development forecast in the next few years, major catalysts and risk points, and so on.

More importantly, it is useless to memorize these light, and the conclusions of these fundamentals should form a logically progressive, self-consistent closed loop and verified by financial data.

The advantage of in-depth research is that the understanding of individual stocks has reached the depth of institutional researchers, but the institutions are separated from investment and research, and fund managers' understanding of the companies they invest in is usually not as deep as that of researchers, and there is often the phenomenon that they can not firmly hold shares in the face of bearishness; and the integration of individual investors in research can better reflect the conclusions of the study on investment behavior.

But the disadvantage is also obvious, mainly covering the research risks caused by the small number of companies.

Generally speaking, the research risks of big white horse companies are small, but their valuations fully reflect that they are unable to obtain excess returns (these two years are abnormal). Both require comprehensive scanning, in-depth analysis and long-term tracking of companies with high returns, such as distress reversals and accelerated growth.

Research is the cost, and the return on investment is the return. After studying for a long time, it is found that the company is worthless and even suspected of fraud, which is always an embarrassment for in-depth researchers.So it is easy for depth researchers to get caught up in "sunk costs", resulting in buttocks deciding the head and overweight positions in the company's difficult times.

In addition, the market style is easy to go to extremes, and many people cover industries that are entirely consumer or pharmaceutical companies, which is a test of the mentality of shareholders.

For investors accustomed to in-depth research, I have a few suggestions:

Advice for deep investors

First, deep investors are more suitable for researchers who are older and have entrepreneurial or business management experience.

If the lack of macro perspective of business managers, entangled in the details, will fall into the vast data, the details and the core logic in the same position to consider. Details are evidence, not opinions, and the role of details is to verify logic and judge future business trends, not to prove how good it is now.

Second, in-depth researchers generally like bottom-up stock selection, but even bottom-up research should understand the industry framework, have a perspective of the overall development of the industry, start with performance and valuation, and go deep into enterprise management step by step.

For example, I see that many people who study banks fall into the financial data such as asset quality, provision and provision for bad debts, but do not study the relationship between the quality of profitable assets of foreign bank stocks and the macroeconomic stage, and the relationship between valuation and the characteristics of the industrial economy. We are investors, not bank auditors, we should analyze enterprises from the perspective of investment.

Third, one or two must be eliminated every year.

After all, there are few companies that can maintain growth for more than five years, and the growth of companies is more phased, and the key research objectives also need to be constantly changed. Although in-depth research is marriage, do not have illusions if it is not appropriate, and divorce is inevitable.

Fourth, in-depth research is generally long-term shareholding after buying, which is suitable for investors with general trading ability.

Advantages and disadvantages of breadth coverage

Breadth coverage means that the investment object covers more, naturally only the most important core logic can be understood, and the understanding of the company is not as comprehensive as that of deep investors.

Fund managers of A-shares are generally breadth researchers because of the two advantages of breadth research:

First, the style of A-shares is extreme and the transformation is fast.If you want to achieve stable performance, you must understand the logic of multiple industries and seize the opportunities of a large number of companies.

Second, because the organization has a research team, the researchers are all in-depth researchers.The separation of investment and research also requires the combination of breadth coverage and in-depth research.

Because of this, the disadvantage of breadth coverage is obvious:

Breadth coverage is a research system that gives priority to winning rates. if you are retail investors, you must give up a lot of good research objects.Including companies that are too small to be covered by research institutions, companies that have long been questioned financially, and companies that are sensitive to supply and demand-companies that need to constantly track upstream costs and downstream demand data.

Breadth coverage has to give up some profit segments.Including the initial period when the company's fundamentals have improved and the period when the fundamentals have changed a lot, there is only profit left when the performance is growing steadily.

The disadvantage of breadth coverage also includes easy to kill good companies by mistake.General in-depth research is strictly critical of long-term tracking objects, there will be layers of elimination mechanisms, elimination of some oneself cannot study or do not understand, financial indicators do not meet the requirements, and so on, while the breadth of coverage does not have a "safety pad" for such research, when the company's fundamentals change beyond its own research ability, it can only "go first".

Some of my advice to broad investors.

Advice for wide coverage

First, breadth researchers are usually top-down investment systems.Start with industry research, select a good track, first spend a week to understand the industry investment framework, and then study a number of companies in the industry together to improve the efficiency of the research.

There is to study the enterprises in the upper and lower reaches of the industrial chain together to see how profits are distributed. I have an industry chain research series in the official account article, you can take a look.

Second, the breadth is just not comprehensive enough, it does not mean that there is no depth.。

It is impossible for breadth researchers to study the details of reports and products, nor to track the recent situation of the company in every period of time, so it is more important to pay attention to big logic, outline, and logic that is unlikely to change.

For example, the relationship between supply and demand should be constantly tracked, and its position in the industrial chain in the competition is relatively stable and less likely to change, and the latter is more suitable for breadth researchers to grasp.

Third, since you have chosen breadth coverage, you have to give up those flexible stocks.. If there are leading stocks in an industry, do not study the following small companies, because if you have less research energy in each company, you must require more certainty in the company itself.

What type of research is more suitable for retail investors?

Consistency of the investment system

The research system and the trading system must be unified in the same investment system, and they also need to be consistent with your character and worldview. There are four differences:

Match with the trading system

In-depth research covers a limited target, takes a long time to track, and is more suitable for the trading system with long-term odds first.；

The breadth study covers many targets, so it is necessary to judge the success rate of the investment target first.Whether it is an investment system based on long-term certainty or an investment system based on short-and medium-term prosperity (see the previous article in this series for the content of the trading system).

II. Comparative advantage

From the perspective of comparative advantage, retail investors are more suitable for in-depth research.

When it comes to breadth research, you must be no better than institutional investors. I have only a dozen light groups here, exchanging all kinds of information every day, if not breadth investors. The investment target of breadth research is very demanding on timing, and a good logic is often to discuss it while going up, and the discussion is over when it is sufficient. Without this information advantage, rushing in is often the life of standing guard.

On the contrary, the time sensitivity of deep investment is not so strong, although you lag behind the organization at first, but for a long time, the organization is busy chasing new hot spots, you are still persisting in the research, and the progress bar will be made up.

Third, character, ability circle and information gap

The premise of in-depth research is that you have a research personality, can stand loneliness and can hold a ticket.

On the contrary, if you are an investor who does not like research but has a lot of trading experience, then breadth of coverage is more suitable for you.

In addition to the rise of the company itself, the source of profit with broad coverage comes from switching between different companies and industries, or changing positions in the same stock-all of which require considerable trading skills. or you need to have a deep understanding of the cyclical cycle of the industry, or you need to have a deep insight into changes in market style.

In addition, the biggest advantage in research is that you have research resources that others don't have in your life or work, such as you or your friends are from the industry, or you have used related products or have business relationships.

So,When there is an information gap, grasp the information gap, that is, in-depth research, when there is no information gap, pursue more definite research opportunities, then it must be covered in a wide range.

IV. World outlook

The fundamental difference between in-depth research and breadth research is agnosticism and agnosticism.

The "agnostic" believes that as long as you have enough time and energy, you can figure out the value of a company, but the "agnostic" believes that most companies are "black boxes" and their internal core values are unknowable. we can only study the visible part, so the best way is to cover the east and the west.

There is no right or wrong between "agnosticism" and "agnosticism". They are part of one's world outlook and are difficult to change.Tend to "agnosticism" will eventually embark on the road of in-depth research, tend to "agnosticism" will eventually embark on the road of breadth of research.

It's not antagonism, the key is self-consistency.

Breadth and depth are mainly the performance-to-price ratio of research investment, so they are not absolutely opposed to each other.

Yu Wenxin of Haitong Pharmaceutical said: "for non-medical background, the easiest thing to invest in medicine is to invest in companies with channel barriers first." Relatively speaking, the research terminal is simple, and the position will rest assured. Although it is difficult for them to understand the barriers, they can rest assured to buy after in-depth research, because the competition pattern is relatively stable, so it is OK to find the strong and Hengqiang company. "

The study of "companies with channel barriers" means that because the competition pattern is stable, one-time in-depth research can cover many years, do not need to follow too closely, and save energy to cover more companies with both depth and breadth.

In fact, some investment models with great difficulty and high return need the combination of in-depth research and broad coverage.

For example, the reversal of the predicament is aimed at the money of performance, and the main purpose of growth is to earn the money of valuation. The former should not only endure loneliness for a long time, pay attention to those unnoticed cold tickets, but also control the pace of investment and not run out of bullets prematurely; the latter not only needs to understand the enterprise, but also needs to have a deep understanding of the characteristics of the industry, market style, themes and catalysts.

There are many kinds of research methods, and there are also many kinds of trading methods. some research methods are contradictory to trading methods, such as fundamental research and random T, while some are not effective, such as in-depth research and priority of winning rate.In-depth research and breadth of coverage itself has no advantages or disadvantages, weak water 3000, only take a ladle, the key is to be self-consistent, to know which ladle is your dish.