The best time to invest in the best is that everyone has completely miscalculated its value, which is the most fully underestimated. However, most good companies are fully recognized by the market, so it is difficult for us to earn absolute value. Most of the time we are looking for the best products that are relatively underestimated.
The covid-19 pneumonia epidemic has caused great shocks in major markets around the world. In this regard, Chen Yu, chairman of Shennong investment, said in an exclusive interview with red weekly that in fact, it also gives many top-grade companies relatively underestimated opportunities. If there is a chance that the target will double in three years, he will not hesitate to operate full positions.
At the same time, he believes that the market differentiation is accelerating. Originally, it was 2 / 8 differentiation. Now it can be said that it is “2 / 98 differentiation”, that is, only 2% of the stocks enter the bull market, and the other 98% of the stocks have no investment value. In this trend, investors need to carefully grasp the differentiation opportunities. From his favorite plate, he believes that the pharmaceutical plate will be the most certain golden track in the next 30 years.
from “value rotation” to “best investment”
red weekly: President Chen is also a long-distance runner in the field of value investment. Can you introduce your experience of changing to value investment? Why is value investment attractive to you?
Chen Yu: because I entered the investment industry from the Secretary of a listed company, my previous work background and experience determine that I am more used to and good at studying the value of investment targets than pure speculation. Of course, with my deepening understanding of investment, my whole investment philosophy has changed in two stages.
First, in the first stage, our investment philosophy is called “value rotation”. Industrial people must know that it is very dangerous to pay attention to some worthless things purely for speculation, so investment must be based on in-depth study of fundamentals and judgment of value.
However, because the early capital market had the characteristics of highly scarce chips, the market environment was extremely closed. When I was a board secretary, there were only 1200 listed companies, and these companies have been listed for 10 or even 20 years. Therefore, there is no fundamental endogenous growth to match so much capital. At that time, the huge fluctuations in the market mainly came from the entry and withdrawal of OTC funds. If you only invest on the basis of value investing, you will find that the stock valuations on your hands were quickly frothed. So at that time, we were basically based on the speculation idea of fundamentals, that is, “value rotation”.
red weekly: is to find good targets and sell high and absorb low on good targets? What made you give up this investment idea and way later?
Chen Yu: yes, what we did early was actually “band value investment”. Since 2015, China’s capital market has entered a new stage. The supply of stocks has greatly increased. Investors have many choices, such as Shanghai Stock Exchange, Shenzhen composite index, small and medium-sized enterprises, science and technology innovation board, Hong Kong stock connect, etc. the scarcity of chips in the stock market has been broken, the driving factors of the internal value of stocks to promote the rise of their stock prices have been strengthened, and the “speculative value” of the stock market has decreased.
red weekly: in such an environment, your investment philosophy has entered the second stage?
Chen Yu: yes, our investment philosophy has sublimated from the initial “value rotation” to the current “best investment”. The idea of best investment is to walk with the strongest of the times and invest in the most profitable industry, the most excellent entrepreneur team and the most perfect business model of the times.
The secondary market, especially a shares, is a particularly noisy market, so it is really difficult for investors to keep their ability circle and basic investment philosophy. First of all, it is relatively easy for us to select the best companies. For example, we know that white horse stocks such as Maotai, Gree, Midea and Hangzhou Hikvision Digital Technology Co.Ltd(002415) are all the best companies, but the interference of external noise is very large. If we can hold these good stocks, we should “combine knowledge with practice”.
Therefore, the biggest difficulty in adhering to value investment is “knowing” and “Practicing”. But in other words, the failure to integrate knowledge and practice is still because the cognition is not deep enough. Therefore, to overcome these difficulties, the most fundamental thing is to go deep (Research and Research) into the fundamentals of the company, so that we can enhance our confidence and avoid the interference of external temptation to a great extent.
the epidemic hit the market and underestimated high-quality stocks surfaced
red weekly: for price investors, the market rise is certainly good, and the market crash is creating buying opportunities. This year’s covid-19 pneumonia epidemic has led to a sharp decline in A-Shares and major global markets. What new situations do you think are emerging from this sharp decline?
Chen Yu: recently, the general environment of China’s international capital market has entered a highly volatile stage, and the high volatility is bound to continue to accelerate market differentiation. In this process, investors should learn to firmly grasp the differentiation. Because our market is no longer 2 / 8 differentiation, but has entered 2 / 98 differentiation. Only 2% of stocks enter the bull market, while the other 98% of stocks are not worth investing. We should be more cautious.
red weekly: there is a market view that the current is the initial stage of slow bull and long bull in the A-share market. What do you think is the key basis of a long bull market?
Chen Yu: the current A-share market still needs to continue to implement institutionalization and marketization. At present, the system construction direction of market opening supply is very correct, which is equivalent to giving the market an environment of survival of the fittest. In the near future, the new securities law has been implemented and some policies have been revised, such as the relaxation of market refinancing and the reduction of venture capital fund shareholders, which are the embodiment of promoting the legalization and marketization of the A-share market.
red weekly: back to your specific strategy, is there a top-grade standard that meets both low absolute value and low relative value? How do you determine the degree of “low”?
Chen Yu: the best time for best investment is that the market has completely miscalculated its value, which is the most fully underestimated. However, most good companies are fully recognized by the market, so it is difficult for us to make money that is significantly undervalued in the short term. Most of the time, we are looking for the best products that are relatively undervalued in the short term and absolutely undervalued in the long term. Judging from the recent performance of the market, many excellent individual stocks have fallen to a sufficiently cheap price. Although in the short term, these changes in stock prices are a normal response to short-term bad news, the way for the best company to win in investment is to look at them from a long-term perspective.
red weekly: because the epidemic is still spreading around the world, will this lead to frequent buying points of good companies? What is your method of adding positions?
Chen Yu: the best way is to look for the current low point from the perspective of the future. The prices of the companies we mentioned just now are relatively low. After we buy them, they may continue to fall, which means that good buying points will indeed appear frequently. If I can see more than double the opportunity within three years, I will be full of positions, but if I can’t see this opportunity, I will choose to continue to wait or gradually increase my positions.
medical treatment will be the golden track in the next 30 years
red weekly: you always say that medical treatment is your favorite and will be a golden track in the next 30 years. What are the background conditions for your judgment?
Chen Yu: I think whether a track is good or not and whether it can make money mainly depends on the demand. Medicine is the lowest and most rigid demand of life, especially when China has entered the aging era. The three decades from 1949 to 1979 were a period of rapid population growth in China. Therefore, we found that the growth curve of China’s elderly population increased sharply after 2009. This trend is expected to reach the peak in 2050, when China’s elderly over 60 will reach at least 500 million people.
In this way, we can see how much market demand there is for medicine and health care. Based on the annual increase of 10 million elderly people and the cost of 30000 yuan for each elderly person, the field of elderly medical care and health care is a new market of hundreds of billions every year. So this is a huge market full of certainty.
red weekly: how did you find a good target in such a large enough market?
Chen Yu: we mainly focus on the sub fields of the medical and health track. For example, we will find the market leaders corresponding to each segment track such as innovative drugs, medical devices, generic drugs, biopharmaceuticals and vaccines, and a best leading company will be born in each market. After the track leader is determined, the best company will be selected in combination with the company’s business model and entrepreneur team.
Taking Hengrui as an example, the reason why we are optimistic about Hengrui is that it is very good at choosing the track. First of all, Hengrui is transitioning from the generic drug market to innovative drugs, and its positioning in innovative drugs is tumor drugs. After the track is selected, its business model is strong R & D + strong sales. Combined with its high strategic foresight, the company’s moat is very strong.
red weekly: there is a market view that although the valuation of Hengrui is high at present, it is possible to realize ten times in ten years from a long-term logic. What do you think of Hengrui’s future growth space?
Chen Yu: first of all, Hengrui’s overall strategic layout is very avant-garde. It is the first Chinese enterprise to fully invest in innovative drugs; Secondly, it chose tumor drugs in the positioning of innovative drugs, which is equivalent to choosing the most “fat” in both the general direction and the small track.
Just now, we also discussed that China’s pharmaceutical and health field with an annual market value of 100 billion is a huge gold track. As a leader in such a gold field, it can be said that Hengrui has the largest health market in the world, so Hengrui is expected to be among the top ten pharmaceutical enterprises with market value in the world. Now the threshold of the world’s top ten pharmaceutical enterprises is trillion market value, and now the market value of Hengrui is less than 1 / 2 of this threshold. Will Hengrui grow tenfold in the future? It should be said that there is hope. At least in the long run, Hengrui is very likely to impact the trillion market value.
red weekly: what impact has the epidemic had on the medical sector?
Chen Yu: with the spread of the “covid-19” epidemic, some medical concept stocks have ushered in a short-term market, but we think it is unsustainable. For example, masks, after all, when the epidemic situation improves, people’s demand for masks will no longer be strong, and some relevant companies will experience a sharp decline in performance and inventory backlog. We are more optimistic about stocks in the direction of improving immunity, vaccines, high-end devices and Chinese and western specific drugs, especially the traditional Chinese medicine sector. Because after this epidemic, we also generally understand that if you are really infected with the virus, your own resistance is the most important.
consumer leaders will still enjoy the valuation premium
red weekly: let’s talk about consumption. Because the consumption sector has increased greatly before, many investors think that the current consumption sector does not have high cost performance. What do you think of the consumption sector?
Chen Yu: consumption is one of the three major tracks we focus on. In fact, the consumer industry is now facing many changes. With the continuous interpretation of consumption upgrading, the whole consumer market also presents three major trends: quality, branding and Internet. These new changes have brought us a “new life of consumption”.
Among them, quality is the company’s product core, branding deepens the product moat, and Internet provides a new way for the growth of enterprises and brings more attempts. Like the Baijiu plate in consumption, the premium is the premium of the brand. We drink Moutai and consume the brand of Moutai. The Internet has made our consumption more diverse. Internet e-commerce, online education and online games have opened up a new virtual space for us. Many of the needs of consumers have just been excavated. Therefore, we are very optimistic about the consumer sector.
red weekly: do you think consumer leaders such as Maotai and Haitian will continue to enjoy the valuation premium?
Chen Yu: there is no doubt that the leading consumer will still enjoy the valuation premium, but Maotai and Haitian have now encountered bottlenecks in their development. High grade Baijiu is a very good business mode. Moutai can be said to be the best in the best. What Maotai has done in the past ten years is to constantly cultivate brands. It has also tried some derivative brands, but we found that the most profitable product line in Maotai is Feitian series. This brand has now changed its new leader and entered a new era. Can Maotai’s brand strength develop strongly in the next 30 years? Can you continue to support ten times the price of other Baijiu brands? This is actually a question.
Haitian’s bottleneck lies in the breadth of the track. It has achieved the extreme in the field of condiments. Now Haitian has the ability to lock customers’ mouths, realize strong cash flow and strong competitiveness. Its focus in the future lies in the expansion of the track.
red weekly: for Gree, you once said that if Gree does not move towards diversification, it is difficult to achieve a leap in market value from 200 billion to 200 billion. How do you evaluate Gree’s diversification process in recent years?
Chen Yu: at present, we still put gree in the pool of the best company, because its upward momentum has not been exhausted, but in fact, the bottleneck of Gree is obvious. Gree has been focusing on strategy for many years, but even if the whole track of air conditioning is expanded again, it is nothing more than expanding from single air conditioning to central air conditioning, and the ceiling is very limited. If Gree wants to rise another order of magnitude, it must attack a large market 10 times larger than its current air conditioning field. This is why Gree will try to make mobile phones and cars to find the explosion point of the next technology track. But frankly, Gree has not found the direction of “the next Gree”.
However, what we need to see is that Gree is obviously undervalued as a whole, so even if it does not look for the “next Gree” and only maintains the leading position in the field of air conditioning, the return level can be very high and still belongs to the best company.
(stock market red weekly)
