Source: Kigaku Club

1.

In the long run, good deals can't save bad analysis, but good analysis can ruin bad deals. But in contrast, the hardest part is learning to wait.

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; rather, they know how to give up and persevere; rather than being able to listen to the six ways of looking, they are always focused without hesitation; rather, they are more gifted and have extraordinary insight, so much more so that they can see their own limitations more deeply and clearly know what they can and cannot 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.

II.

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.

III.

There are many elements involved in investment decision-making, but if refined and summarized, there are probably three most critical points: 1. Overall view. It's about understanding where you are in the entire market cycle, whether it's fear, greed, or numbness; 2. Value judgment. The bet should target the target in the dominant category in the future 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.

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 do some people die when they make a mistake, while 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, for such a good company, the market will almost always give a capital premium, that is, a higher PB.

Editor/jayden