On February 28, the second issue of dialogue · face to face with fund managers, carefully created by China fund daily, was officially launched. In this issue, we invite Xu Lirong, deputy general manager and investment director of Guohai Franklin fund.
Xu Lirong, who has been floating and sinking in the capital market for 25 years, is a veteran of long-distance strength school and a loyal practitioner of reverse investment. His long-term service in the joint venture fund company makes him have a more international vision, be good at making horizontal comparison around the world, and find and distribute undervalued potential stocks.
In this issue of dialogue, Xu Lirong starts from his investment and research experience, explains his investment methodology in detail through the interpretation of the current market trend, and shares his investment journey with professional investors and ordinary investors.
interview golden sentence
investment is very important to know yourself and position yourself in society. In this way, your investment may also have better results
market is momentum driven. When the market is in a panic, it will often “kill” many good companies to a lower position, which also gives reverse and long-term investors some opportunities to buy good companies at a relatively cheap price
I prefer to invest in growth stocks. Its balance sheet and financial statements are relatively healthy. Instead of purely using leverage to increase the operating leverage and financial leverage to obtain a higher return on net assets, it can maintain a relatively high asset weekly conversion rate, or a relatively high net interest rate
if you put yourself in the position of global investors to think, some companies will give up selectively. Because from a global perspective, you may have better targets to choose from, which will push you to find other companies with more growth potential
before, the most frequently mentioned thing was “style change”. Whether to change from “value” to “growth” or “growth” to “value”. I think there may be fewer and fewer discussions in the future, because the future world will be more similar to a parallel world, that is, everyone makes their own money
text record
host: dialogue investment guru, grasp the market pulse, welcome to the scene of dialogue, a high-end interview program exclusively created by China Fund News. I am the host Wenjing.
Since this year, the market shock has intensified, and some track stocks have callback, while the undervalued sector has a good performance. How to view the current adjustment of track stocks? Is the performance of the undervalued sector sustainable? Are styles switching? Should the fund stick to or adjust its position?
In this program, we invited Xu Lirong, deputy general manager and investment director of Guohai Franklin, to talk with investors about the “offensive and defensive way” of investment in 2022.
After 25 years of ups and downs in the capital market, Xu Lirong is a strong veteran of long-distance running and a loyal practitioner of reverse investment. Having worked in a joint venture fund company for a long time, he has a more international vision, is good at making horizontal comparison around the world, and looks for and distributes potential stocks with undervalued value.
Hello, Mr. Xu. Welcome to our program. Please say hello to the fans of China fund newspaper first.
Xu Lirong: Hello, fans of China Fund News, I’m Xu Lirong.
host: we see that you are one of the few veterans in the market with more than 20 years of investment and research experience. Can you first make a brief self introduction to our fans.
Xu Lirong: I started working in this industry after I graduated as a graduate student in 2001. I first made securities investment in a central enterprise in Beijing, including primary market and secondary market; Later, he joined the financing fund in Shenzhen to do research and manage the fund at the same time; Joined shenwanlingxin fund in 2004; Since 2008, it has joined the national sea Franklin fund.
Moderator: you worked in an investment bank in the past and later became a public fund manager. Such experience has a profound impact on your research in investment, including the establishment of investment framework. What do you think of investment? Can you share it with us?
Xu Lirong: in a sense, our stock market is the reflection of this society. So you will see that in society, you will meet all kinds of people in your daily life, work, family, residential area, travel and so on. Some people are very close to your ideas and values; Some people are the opposite of yours; Some people you can’t agree with at all. Feedback to the investment market or stock market, there are also various ways to make money and invest, and human greed and fear will be fully reflected in the stock market.
my own understanding of investment is: it is a mapping of our society in the capital market, or stock market. So I think the important point of investment is: how can you recognize yourself and position yourself in society. In this way, your investment may also have better results
Moderator: when talking to President Xu in the industry, the first words I thought of were “bottom-up”, “reverse thinking” and “GARP strategy”. Can you tell us your investment logic and investment framework?
Xu Lirong: my investment framework is generally in the following aspects:
first, bottom-up I position myself as a stock selection investor. In this way, I will not easily increase or decrease my position according to the “top-down” principle, but depends on the results of my stock selection in various industries “from bottom to top”. If I can’t select enough stocks that meet my own investment framework, my stock position will naturally be low. But as long as I can choose, I will always keep close to the pattern of full position investment.
second, the investment method is generally reverse this has something to do with my own personality and background, as well as my understanding of investment.
In terms of personality, I prefer to go to “places with few people” and relatively reluctant to go to “places with many people”, which is also a factor.
In China’s capital market, making bottom-up investment is more painful. Because in a certain sense, it is a momentum driven and retail driven market. Reverse investment is popularly called “left investment”. When doing “left investment”, you may need to endure for a long time, and you may need to wait for half a year, a year or even two years. We know that waiting is very painful. The stocks you hold may not rise or even fall, but your peers or other stocks you buy perform very well. This process is very painful.
I think it’s better to make “bottom-up” investment in China because the market is momentum driven, so when the market is panic, it will “sink into the mud and sand” and “kill” many good companies to a lower position, which makes them more backward Long term investors have some opportunities to buy these companies at relatively cheap prices
However, it is very important to do reverse investment in China. To avoid falling into the trap of reverse investment, many people “reverse for the sake of reverse”. What we are most familiar with is the widely circulated theory of the old lady in charge of bicycles in the sales department: when the old lady recommends stocks to you, it means that the stock has peaked.
This theory sounds reasonable, but it’s not. Because in the past, we were in an era of “rising and falling together” and a bull market before bull stocks. In such an era, if even people who never invest and don’t pay attention to stocks are recommending stocks to you, the market sentiment may really peak. However, if the market is more profit driven, even if a company may have risen a lot and many people are talking about it, if its profit can continue to grow, it does not mean that its market value will not continue to grow. For example, the bull market in the United States in the past 13 or 14 years is such a typical example.
so if I want to invest in China, what I always remind myself is to have enough patience, persistence and confidence. There is also a very important point is to have a relatively open investment mentality to avoid falling into the trap of “reverse for reverse”
third, the investment framework of GARP my personal understanding is that China is a country with relatively medium and high-speed economic growth in the world. If I invest in a target in such a country, I hope to buy some growth companies. However, the valuation of these growth companies I hope to buy is more reasonable. Therefore, there are few companies with very high P / E ratio in my portfolio, because I don’t quite understand the valuation methods of these companies.
I may buy companies with stable growth but attractive valuation and relatively cheap prices, such as some high-quality bank stocks and some cyclical growth companies. Its endogenous growth is better, but because it is considered to be a cyclical company, its valuation may be cheaper. If these cycles are not in a very high position and endogenous growth is relatively strong, I will also invest.
There are also some companies whose growth will be very good, but their valuation is not cheap. This needs to be analyzed according to the situation of each company, and I will also invest. Ideally, its sustainable growth is good and its valuation is very cheap. This is what can be met but not required. You may encounter such opportunities once or twice in a year or two or three years, such as some companies in the photovoltaic industry in previous years.
The last point in my personal investment framework is that I have worked in the joint venture for nearly 20 years, so when I came from Shenzhen to Shanghai, I wanted to know more about how foreign mature markets invest. So I went to the CFA at that time, hoping to have a more systematic understanding of foreign investment methods. After nearly 20 years of practice, I think both local investors and foreign investors have their own advantages and disadvantages. My cognition will be clearer and I will have a more international perspective when investing, which will be reflected in several aspects:
first, I would consider myself as a global investor in stock selection, and I can invest in mainland China. I can also invest in Chinese mainland Hongkong, and I can also put stock in the US market. As a global investor, whether I will invest in such companies or not will make my stock selection goal clearer
Second, in terms of valuation comparison, for example: We used to invest in an internet financial sales company. When we bought it four or five years ago, we struggled for a long time and felt that its valuation was too expensive. However, when we carefully studied the comparable American companies, they were in the five to ten years of rapid growth, Its valuation is much higher than that of its market, so we can accept its valuation. But in fact, the growth of the company eventually far exceeded our optimistic assumption at that time, which is one aspect.
Third, in terms of portfolio management, we have absorbed more foreign experience in portfolio management. Our portfolio will be more decentralized, and we pay more attention to the return after portfolio risk adjustment. For example, we will pay more attention to the management of portfolio, such as the volatility of portfolio, the tracking error of portfolio, the sharp ratio and information ratio of portfolio. In this way, the result of our portfolio is that it may not be particularly fierce when it rises, but our volatility will be relatively small and our pullback will be relatively small. In this way, the risk adjusted return is relatively OK.
I think this is basically my general framework.
Moderator: I just heard you mention that you are looking for growth companies at a reasonable valuation level. How on earth do you choose stocks in the investment framework of GARP? Which dimensions do you value more?
Xu Lirong: in stock selection, first, I will try my best to find some companies in various industries that can provide excess returns for a long time. Personally, I don’t particularly agree with the investment of the so-called “track theory” which has been popular in recent years. First of all, it is more about top-down investment; Second, it is actually an investment method borrowed from PE. This kind of investment requires very high requirements for investors. It requires you to have a very in-depth understanding of this industry, related upstream and downstream industries, and competitive industries before you can make investment. But now, people who do track theory in the secondary market, including some professional investors, I don’t think they have done enough in this regard.
Maybe education will be a good track in the first two years, but this track has not been used in the past two years. So I am looking for some companies that can create excess returns in as many industries as possible. Although some people will say that we should search for gold in the gold pile, not in the garbage pile, because the probability is low, and the gold that comes out may not be real gold. This sounds reasonable, but what we pursue is that in every industry, if we can find a company that outperforms other competitors in the industry, it will have a high probability of contributing excess returns to the portfolio. In the long run, the overall excess return is not necessarily poor compared with other so-called hot industries.
In addition, another great advantage is . You can find some companies that are not concerned by everyone in very unpopular industries, and their valuation is often relatively low.
If we look at the fundamentals of these companies, it is expected to go through a double-click process
Generally speaking, my stock selection mainly focuses on three aspects:
the first is the management of the company I hope that in my own investment cycle, I can choose a management whose interests are consistent with ours and who can be trusted. My investment cycle is three to five years, because I don’t think my holder has given me an investment cycle of five to ten years, or even more than ten years. Therefore, I hope that in my investment cycle, the management interests of these companies we choose are consistent with ours; And I can trust him.
For example, through interviews with these managers, their competitors, their former employees and their suppliers, we can establish the understanding of this management: does this management want to do a good job in the enterprise, or do they want to expand the market value, or do they want to fry stocks, or do they care about the stock market at all. Through further understanding of this thing, we hope to select some managers who focus on their own industry, know their own industry very well, and we recognize that they will make achievements in the end.
After choosing this, the most important thing is to accompany it. Because the management will make mistakes, each of us will make mistakes, and fund managers often make mistakes. If we sell it quickly because you make a mistake, many enterprises where the management is located will not be able to operate. In this case, if we once select him as the management we can trust, we will choose to accompany him patiently.
second, the company itself should have a high enough ceiling its industry may not be popular, but it has enough space in it. For example, we chose a bank in the banking industry. Up to now, its growth ceiling in the industry is still very high, which is very key for us, because in essence, we want to invest in this kind of growth stocks.
the last one is the return to risk ratio because a good company also needs a good price, many companies may be excellent, but when its valuation has reached a very high level, it may overdraft the fundamentals for a long time in the future, and the fundamentals may deteriorate. Then for us, the need for investment has greatly decreased.
Therefore, the company I selected will draw an appropriate return risk ratio according to the possible upside and downside I think, and finally select the company that wants to be included in our portfolio.
Moderator: just now, president Xu also mentioned that in addition to the management and income risk ratio, you mentioned one point: the company should have a high enough ceiling. In the whole GARP strategy, the core problem is g: growth What do you think of the company’s growth?
Xu Lirong: I understand the growth. First, I hope to see that this growth is sustainable it doesn’t necessarily mean that EPS (earnings per share) grows rapidly in a certain year, but it may come down again in the next few years. I don’t think it’s growth, it’s just a fluctuation. I hope this growth may even be lower than expected in one or two years, but according to our investment cycle of three to five years, this growth is sustainable and replicable, not some non recurrent and accidental factors.
For example, it may be inappropriate: in the past two years, some companies will have some income that can last one to two years because of covid-19 treatment and vaccine, but if we look at a three to five-year cycle, it is actually unsustainable. This kind of growth, I think, is not the growth stock I want to pursue.
second, I hope this growth is a relatively high-quality growth by applying a slogan put forward by our country’s economic development that is to say, there are some ESG concepts in this growth, which is not based on the excessive squeeze on the environment, labor force and employees; It is based on the possible innovation of the enterprise, or the brand of the enterprise, or the business model of the enterprise. I think this is relatively high-quality growth. Moreover, this growth is supported by a strong balance sheet, not by increasing leverage.
I prefer to invest in growth stocks. Its balance sheet and financial statements are relatively healthy. It does not simply use leverage to increase the operating leverage and financial leverage to obtain a higher return on net assets, but can maintain a relatively high asset turnover rate, or a relatively high net interest rate. Under such circumstances, it has achieved a relatively high return on net assets, which is the growth I want to pursue
Finally, in a sense, this growth is similar to investors’ choice of funds. In other words, what we hope to get from investment is alpha income, but in retrospect, we just get the beta of the times we are also faced with the same choice when investing in the company. I hope it brings excess returns due to the excellence of the company itself, not entirely due to beta opportunities brought by industries and policies
Of course, it is difficult to distinguish them in practice. How can we try to distinguish them? A typical example is a similar cyclical growth stock. When the cycle is good, its profit will be very good. But this is more due to the price and its simple expansion. What we pay more attention to is that if it enters a new field through the so-called second curve, this second curve can bring some different growth modes to it, maybe a little slower, but this kind of periodic and organic growth is what we want to pursue.
Moderator: you just mentioned that a growth company must be a sustainable growth under the concept of ESG, and its financial statements should be healthy enough. When you choose stocks, if the company is growing, but its valuation is a little expensive, how do you balance growth and valuation? Which comes first for you?
Xu Lirong: this is a very challenging issue for fund managers in the past three to five years. As we all know in the past two years, the so-called rise in core assets is actually a rise in valuation to a large extent. Suppose we think 50 times is reasonable and 70 times, why do you still think it is reasonable? Now it may have fallen to 40 times, and you think it’s unreasonable, so you have to fall.
The key here has puzzled us for a long time. Because I am a reverse investor, theoretically I will buy on the left. When everyone doesn’t want it and its valuation is relatively low, I will buy it. Theoretically, “sleep early and get up early”; If you buy early, you should sell early. When the market has recognized and fully reflected this thing, you should sell it.
If we had done so in previous years, we would have found many regrets. Maybe you made a lot of money after selling, but you didn’t make the most. But if you don’t comply, it’s not consistent with our concept of reverse investment. So in this case, the result of my thinking now is as follows:
first, what I value most is the trend of fundamental changes this trend is maintaining the same change speed, or it may be weakening, and even the medium and short-term fundamentals are changing in another direction. This is my first priority.
I now put valuation in second place if the fundamentals are still on a normal or even higher than expected basis, I can tolerate a certain increase in valuation, but the tolerance limit of valuation increase depends on whether I can understand the valuation. If I think I can’t understand the valuation, I’ll sell it, too.
For example, last year, some leading enterprises, such as the leading enterprises of new energy, may have risen to a valuation that I don’t understand. We calculate its profit in 2025. I think this is a bit optimistic assumption. Under such circumstances, (even) give it a reasonable P / E ratio, (valuation) has exceeded, Then it’s hard for me to understand this valuation, and I may sell it.
Of course, in terms of the results, in fact, it has risen a lot and now it has fallen back, but it has risen a lot later. This often happens in investment. Therefore, I don’t think there is a standard and unified answer to this question. It still depends on the company of each case, its industry and market situation, and then draw a conclusion by integrating individual stocks. But according to the rule of thumb, I will pay more attention to the change trend of its fundamentals, and then its valuation.
of course, investor sentiment is also a very important reference indicator for example, a year or two ago, everyone was very enthusiastic about the so-called core assets. They thought that 70 times was not a problem and might rise higher. At this time, it was an obvious selling signal for me. Conversely, now everyone may say that falling to 50 times is still too expensive. Everyone avoids it. For me, this may be a better phenomenon.
Moderator: you just mentioned that you still put the change trend of fundamentals first and valuation second in stock selection. We know that many popular track stocks are very expensive. On the contrary, some unpopular industries may have some growth oriented but cheap stocks. Will you personally go to some unpopular industries for mining?
Xu Lirong: yes, because from the perspective of portfolio management, there will be all kinds of Companies in my portfolio, and companies in all industries and styles will choose. For example, I will go to companies that people don’t pay much attention to or are not optimistic about now and think they may not have a chance in a year or two. If the valuation that meets the stock selection conditions we just mentioned is more reasonable, we will also include it into the portfolio.
But there will also be some companies in our portfolio that are popular now, which we like better, and we also feel that there are no problems in its fundamentals or direction. The valuations of these targets may be a little more expensive than we think they are reasonable, or almost. I can also accept this situation.
Therefore, our layout is always balanced and will not bet on a certain direction. For example, if you all bet on the hot ones, I’ll bet on the cold ones. This is not our strategy. I hope my portfolio has a certain layout in various fields.
because I have a theory that investment is actually a reflection of this society. I also have a theory that we should never test human nature. Human nature cannot stand the test for example, if I buy a company, I think it is very good. I can take it for one year, two years or even three years. I can stand it if it doesn’t rise. But in the real world, if I take this company, all my portfolios will not rise for one to three years. I don’t think I can hold it. I’m likely to sell it before dawn.
so I hope my portfolio is not all ambush and waiting companies. There are all kinds of Companies in it, so that my portfolio can have a better performance for example, last year, some companies in my portfolio fell a lot, but I can accept it. Because there are also companies with good performance in my portfolio, the performance of my overall portfolio is also OK, which also allows me to continue to endure. This is to go back to what I said “don’t test human nature”, and don’t think “I’m a God and can withstand it. I have so many years of investment experience and I can withstand any pressure”. This is not the case in real life.
Moderator: in fact, most people’s cognition is to buy when the valuation is low, and then sell when the valuation is high. Do you actually prefer a reverse operation? And how do you define this expensive and cheap, and how do you define the valuation?
Xu Lirong: yes. This problem may also be confused for many investors. In fact, if you pay attention to the observation, many popular stocks have a very important feature, that is, when it is fried to a high level, the number of shareholders and retail investors will increase significantly, and then when it falls all the way to a low level, the number of shareholders will decrease significantly. As many people said, I do buy it when its valuation is low, so I think it should be divided into several dimensions.
The first is to see whether the valuation is dynamic or static. Many people often look at the valuation statically. For example, many companies are profitable, but its cycle may have peaked. Like a cyclical stock, its valuation may be very cheap. At this time, you will think its valuation is very low and choose to buy.
In fact, this is wrong, because if you look at the next cycle and a cycle at the current time point, for example, three or five years, the industry may have reached the peak of the cycle, and this is the time when it has the highest profit. Therefore, its low valuation is completely reasonable. In the future, the valuation will only be lower and lower, because the profit goes down. At this time, there is no reason for you to buy with low valuation. This is the first aspect, that is, dynamic valuation and static valuation,
The second is to buy valuation. What exactly do you buy? Many people think that what I buy is absolutely cheap, and low valuation is the last word. For example, many bank stocks are cheap, so I buy this thing is reasonable. However, the cheap valuation is not necessarily related to the good performance of the stock price and whether the stock price rises, because it also depends on the movement of funds and the change of the profits of the whole enterprise. For example, some enterprises may have a low valuation, which is reasonable, because their profits have not increased, so they may need to maintain a continuously low valuation.
However, the low valuation of some enterprises may be unreasonable. It may only be because short skirts are popular on the street in the past two years, long skirts may be popular again in three or five years, and they may be popular again in a few years. In other words, it may be just this change in everyone’s mentality. For such cases, its undervalued value is actually a better time point to buy. This thing needs to look at this problem dynamically. This is the second dimension.
third, according to my own understanding, the valuation method cannot be mechanized. For example, we look down on PE or low Pb and use low PB to compare cash flow. At this time, we should integrate different industries. For example, we will use a variety of cash flow discounting and PEG, PE and Pb to compare with foreign countries horizontally and vertically. This is the first case
the second situation is to consider comprehensively in combination with the fundamental changes of the company and the preferences of investors in the market for example, there is a kind of company whose valuation is very cheap, but the market may think that the valuation is reasonable and that it may not have any opportunities in one year, half a year or even two years. However, if we think through our own research that the growth of this company is relatively certain in our investment cycle, such as three or five years, then it may need to wait another half a year, maybe another year. Perhaps for everyone, this undervaluation is not optimistic, because there are fewer people. But in fact, this is a very strong buying signal for us. I will be willing to buy and wait, maybe for half a year, maybe longer.
Moderator: in fact, we know, including you, that valuation cannot be viewed mechanically, but to really understand what is the core driving force of valuation? At present, many people in the market use the investment logic framework of GARP strategy for investment and research. Do you think you are different from other fund managers?
Xu Lirong: I think there may be several differences. First, I may invest in a wide range on the whole. For example, as mentioned just now, I will invest in various industries, but I will not invest in all. For example, I will not invest in a large number of consumer goods in the short term, but if I like their products, I will invest in such companies and companies I can understand. For example, we will invest in consumer goods companies and Internet companies that may not be their target customers, We may vote for all these. Therefore, this is different from the investment scope. Generally speaking, the investment scope may be relatively wide. For example, many people may not invest in financial companies, but if I think these are within my ability circle, I will also invest. This is my first direction.
Second, generally speaking, I still belong to investors who maintain a relatively open attitude, and then I will also use the GARP investment strategy. For me, there is no special investment obsession, such as the market value, the company and even the management. Other fund managers may have one kind of companies that do not invest and one kind that are determined to invest. But I don’t have such strong obsession. I may be more open-minded. As long as it conforms to my own stock selection ideas and methods, and falls to the price I think is reasonable, and I also think I can understand and fully conform to my investment framework, then I will consider incorporating it into the portfolio.
So relatively speaking, I will be more open. Because reverse investment is easy to narrow, that is to say, it will close itself, because the market will have a lot of noise and a lot of information. When there is more information, it may shake. If you close yourself, you will avoid too much noise interfering with judgment. The good thing is that, as Welch said, paranoia can survive, but the bad thing is that it may be longer than you think. As I said earlier, so I will be relatively open myself.
Finally, relatively speaking, I pay more attention to the global perspective. Many institutional investors may think that the nature of our positions may be more like foreign investors. In fact, it is. We have certain similarities in stock selection ideas and other aspects, but when foreign investors invest in China, the biggest problem is that many of them sit far away from China. Even if they sit in Hong Kong or Shanghai, their understanding of the market and our local investors’ understanding of the market are still poor.
However, their advantage over us is that their investment cycle is longer, so they can filter out some short-term noise and seize long-term investment opportunities. So what I want to do is that we can absorb their strengths, that is, the characteristics of relatively long periods; At the same time, we can make up for the weakness that is too far away from the market, and strive to be close to the market like local investors. At the same time, our investment cycle is longer than that of local investors. In this way, the probability of obtaining a relatively reasonable return in a reasonable cycle increases.
Moderator: the first point I heard from President Xu just now is that your investment scope is still relatively wide. We see that in fact, you are a fairly balanced portfolio regardless of the overall portfolio or situation. And we know that you have a very ideal state called 3:3:3. Can you give us a brief introduction to this theory?
Xu Lirong: OK, in fact, this is related to my previous discussion about not testing human nature. In an ideal state, I hope my portfolio may have 1 / 3 of the stocks, which may be at a new high or an all-time high; At the same time, 1 / 3 of my stocks are at a record low, and the remaining 1 / 3 of my stocks are in the middle.
So how to understand this? I hope there are some fundamental reasons or other trends in my portfolio, and the overall performance is relatively good. In a short cycle, for example, one year, it may make a positive contribution to our portfolio. Just like some chemical cycle growth stocks we invested in the previous year, we bought them at their record high position. However, in the next three years and five years, it fully meets the conditions we just mentioned, so I did not hesitate to buy it into a heavy position, The result is that it has performed well over the past year and has made a good positive contribution to our portfolio.
On the contrary, I will also pay attention to those stocks that are relatively unpopular or have fallen a lot. For example, now and last year, we will pay attention to some companies that have been falling for a long time and their share prices have fallen by a large margin, but the essence of the company is still very high-quality, so we may slowly incorporate it into this portfolio.
I may not expect these companies to have a better performance in the short term of half a year or even a year, maybe a little longer. But if we look at it longer, I think if the judgment on its fundamentals is correct, it will give us a better performance.
Of course, there will be some companies in the portfolio, which are not as obvious as the two companies we just mentioned. This is the other one-third. Therefore, such a relatively balanced investment style and portfolio are ideal.
Another consideration is that we are bottom-up investors as mentioned above, so I basically do not do short-term timing operation in position selection. Unless I think the market has reached the end, or even can’t find any company to invest, I may consider reducing my position. For example, in 2018, or the adjustment at the beginning of this year, and the adjustment in March and April last year, because your stock position is basically full, it will certainly fluctuate.
If the position is relatively balanced, such a situation will occur. If the market falls sharply, a considerable number of stocks in our portfolio also fall, but some stocks may rise, even in some companies that have reached new highs. In this way, the fluctuation of the whole portfolio will be relatively small, Then the downside risk of pullback will be relatively small. In this way, the possibility of realizing the value of these companies bought by fund managers will be greatly increased.
On the other hand, as an investment, our fund investors are the same. If the fluctuation is relatively large, some investors may sell it out of fear. In the end, they have not realized the purpose of appreciation and preservation, so it is mainly based on such a consideration.
Moderator: I think investors in front of the camera are more concerned. Like the current market environment, now you can see that the market volatility is relatively large and the overall style is not so clear. In such a market environment, can your 3:3:3 model effectively control the pullback? In addition to this combination, do you have any other ways to control fallback?
Xu Lirong: from the current situation, I think the market fluctuation is relatively large, but I think the overall context is relatively clear. Because about two or three years before last year, the whole growth stocks actually took a bull market, especially small and medium-sized stocks, which was also a standard bull market trend last year. Then high-quality companies, or some people call them “Baotuan companies”, also had a bull market for several years before last year, but its performance was relatively weak last year. So I think it’s actually “returning to the mean” at work.
So this year, if some small and medium-sized companies and growth companies that rose well last year, they may start to fall this year. In particular, the position adjustment of many funds will lead to the relatively poor performance of companies with heavy fund positions since the beginning of the year.
In general, the fluctuation of our own portfolio since the beginning of the year is not particularly large. As for how to do it, we just mentioned to make the portfolio balanced as much as possible, and we will also appropriately consider the individual stocks in the portfolio when selecting stocks. Does it have a certain negative correlation.
For example, if the RMB has appreciated, maybe some stocks in my portfolio will benefit and others will be damaged. But if I judge that the RMB is appreciating now, I will not sell some companies that will damage the appreciation of the RMB. In this case, if the RMB appreciation does occur, some companies in my portfolio will benefit and some companies will suffer. In this way, one by one offset will reduce the volatility in the portfolio. I think this is a method.
The second method is to say that we may not invest in stock selection out of allocation type (we need to buy), so we often hear a word called allocation investment or worthy allocation. Why? Because everyone has bought it, they also need to configure it. Maybe they don’t agree with it. But since everyone has bought it, is it possible to fall behind if they don’t buy it? Some people will consider it from such an angle.
But there is basically no such company in our portfolio, because such a company is actually called Baotuan stock or fund heavy position stock. If it comes from such a starting point, of course, you will benefit when it rises, but you will also suffer when it falls. So I think this is also a dimension that needs to be considered.
As for the last dimension, we will also appropriately consider the beta of individual stocks, that is, the proportion of changes in the same direction with the market. Compared with the index, we hope to have some companies with low beta or even negative beta in the portfolio. Well, there are some companies whose beta may be greater than 1. If we build the combination together, we will see what we just said. Even if it falls, just like the decline at the beginning of this year, we will also see this situation. In fact, in the days of the sharp decline, some of our stocks rise and rise to a certain extent, In this way, it can reduce the decline of our portfolio.
Moderator: investors actually pay more attention to how fund managers control pullback and give them a good investment experience. In addition, they are also more concerned about where the alpha of the portfolio comes from? Especially in this year’s market environment, what do you think the alpha part of your portfolio focuses on?
Xu Lirong: our bottom-up stock selection investors actually have several situations. The market conditions are more favorable to us. One is, for example, the market is relatively balanced and volatile without obvious trend, and the other is a weak, bear or weak bear market; In addition, if it is a market driven by fundamentals, we generally perform well in such a market.
However, in a pure liquidity driven market, for example, from April to August last year, for example, from January to may in 15 years, the main driving force of the market may be driven by the profitability of enterprises, but the main driving force is driven by liquidity funds, which may be a situation of raising the valuation of the whole market, We generally perform weaker in this case.
In fact, the current market situation will be relatively favorable for our investment style. In this case, how can we create excess returns or alpha? That’s what I just said – accumulate small victories into big victories. In every industry or most industries I can understand, I strive to find some companies that can create excess returns. Maybe the excess returns created by each company are not necessarily very large. For example, it has only increased by 5% or 10% more than the industry. Of course, I must have some industries, In that year, it may not obtain positive returns or even become negative returns. But if I have achieved such stock selection in more than a dozen industries, my excess return will be considerable.
Another source of excess returns is what we mentioned earlier, because we generally prefer reverse investment. In a momentum driven market like China, when many companies or industries are abandoned by the market, they may feel that they have no chance and trend in the short term, But a slightly longer cycle will be a company with investment value. At the same time, it is a very comfortable and cheap buying range. However, at present, no one is willing to wait, but we are willing to wait. If what we dig is right and the judgment on the fundamentals of the company’s industry is right, it will contribute a relatively considerable excess return to us in a reasonable cycle.
Finally, I think it is also very important to find companies that can continue to rise and perform well. If you can find these companies, you can combine a configuration, a considerable proportion, and it can contribute a better excess return to you. We have been relatively lucky in the past few years. There may be some stocks like this every year. Will this happen this year? I think it’s hard to say we can find it, but at least we have a great chance to work in this direction.
Moderator: in fact, investors are more concerned about the excess return, because you just mentioned that you have a global vision, which is actually inseparable from the globalization gene of Guohai Franklin. What we are more concerned about is how to make horizontal comparison of internationalization and how to use the global vision to make localized investment?
Xu Lirong: in fact, when I joined Guohai Franklin at that time, a very important reason was that we belonged to Franklin at that time, which was still called local investment group at that time.
Then, the idea is that local people invest in the local market, but the money may come from local or overseas. I hope to have a global vision and a local expertise and wisdom. I agree with such an idea very much, so this is also a very important reason why I chose to join Franklin 14 years ago.
Well, in this process, because we have many peers, fund managers and researchers inside and outside the company, and then there are relatively large foreign sovereign funds we manage, we often have to deal with such customers. So in this way, I can clearly know what they are right when they look at China, but what they may not see clearly. In this way, it will be more helpful when I choose stocks by myself.
At the same time, it will also be more convenient for us to conduct international comparison when we are selecting stocks. For example, we have always been relatively confident in banks in China’s financial industry, because from the perspective of international comparison, compared with banks in the Middle East, Brazil, India and emerging markets, our banks have higher return on net assets and lower bad debt rate, It has higher provision coverage and higher return on net assets, and our valuation is relatively the cheapest. There are (although) people’s single business on the quality of bank assets and the prejudice of the whole international market against China. There may be various factors. (however) after such international comparison, we will be relatively confident in such companies, so I think this is an aspect of international vision.
In addition, we will find that there is a very interesting phenomenon in Chinese A shares. We often talk about Chinese characteristics in society. Then when you go back to the stock market, you will also find such a situation. Many stocks are now listed on A-Shares and also listed on Hong Kong shares, but the valuation of A-Shares is often 50% or even twice higher than that of Hong Kong shares. Therefore, even if the same company only trades in different markets, its valuation is so different, which is not very reasonable. However, in the Chinese market, this has existed for a long time. This has a certain relationship with the attribute of funds and the current foreign exchange control, but it can not explain it all.
I understand this problem. In fact, one thing is very important. Many of our investors are the same as many people in today’s society. Now there is actually more information than before, but many people actually live in the information cocoon room more and more. Because the information you get is pushed by the media, which is what you want to see and what you love to see, you must live in such an information framework. If you don’t look at it, you are in the information cocoon room.
So the valuation is the same to some extent. Many people look at this A-share company and see how good it is. But if you open up your perspective, from a global perspective, if you stand in the perspective of global investors, you may have different views on these companies. In this case, I think it will provide us with some different perspectives. Should such companies be bought? Is there a better choice?
although most of the products I manage can only invest in a shares, not Hong Kong shares or Chinese companies listed in the United States, if you put yourself in the position of global investors to think about problems, there are some companies that you will give up selectively and will not invest in. Because if I invest in other companies, I will have better targets, so you will push yourself to find other companies with more growth potential. So this is probably the case
Moderator: you just talked about making localized investment with global thinking. In fact, we know that some overseas fund managers pay more attention to the deviation of performance comparison benchmark. Will you pay more attention to this indicator?
Xu Lirong: we will look at this indicator. Let me put it this way, that is, compared with Chinese investors, they may attach great importance to performance benchmarks, because I believe you have also contacted many funds, but few funds may talk about their own tracking error, that is, the difference between their own fund tracking error and index. But if you communicate with foreign investors – any public fund manager, or the vast majority of public fund managers, everyone will certainly talk about what my own tracking error is.
Then we will pay more attention to this than Chinese investors, so we may be called benchmark aware, that is, we are aware of the differences between the performance benchmark and us.
However, what is different from foreign investors is that foreign investors generally choose a performance benchmark, no matter whether the industry benchmark is CSI 300 or CSI 500, and then it is configured according to each industry. It can not be over allocated by more than twice or more, and can not be under allocated by much. There are some hard constraints and some soft constraints, This is often the case. In this case, I hope my tracking error can be controlled at a relatively low position and don’t deviate too far. It may be about 3% – 5% tracking error or 3% – 7% tracking error.
However, from our point of view, there is no such rigid or soft constraint. I will not determine its weight in my portfolio according to the weight in the performance benchmark of this industry or company, but when I allocate this stock, I will be soberly aware that there may be only one point in this industry, for example, in the performance benchmark, But now I have bought, for example, 5 points. I have 4 points different from it; Or if I buy 6 points and I have 5 points different from it, I will be aware of this difference, so I won’t deviate too much.
Of course, where is the degree of deviation? In fact, it is the dynamic adjustment process of portfolio management. For a simple example, if the company may be in the performance benchmark and the whole industry may have only one point, then for me, even if I am optimistic about the company, the probability will not match more than 10 points on the company. We know that there will be such a situation in the industry. There are many promising ones. It may be that some companies with few and small weight in a performance benchmark will configure a lot, or even configure more than a dozen points. More than 20 points can be found everywhere, but this is not our practice.
Our approach may mean that if I am optimistic, I will configure a relatively high proportion, but I hope this relatively high proportion will not deviate too far. But if it is a foreign fund, he may be very optimistic about the company. If the performance profit is only one point, it will be matched with two or three points, so we will be much higher than them. However, compared with our counterparts in China, it may be far lower.
Moderator: we are also concerned about your previous view that China is currently the only market in the world with large alpha from the perspective of globalization. What is the logic behind your view? Can you share it with us.
Xu Lirong: we did a very interesting research. We grouped Morningstar in Brazil, the Middle East, India, South Korea and the whole emerging market countries.
Morningstar is an authoritative global fund rating agency, which has ratings in various countries. Take these separately. There are about 1000 funds in each group.
We select the median of these funds, which is the 500th fund among the 1000 funds, and look at its income in the past 1, 3, 5 and 10 years. This data is as of September 30, 2021. In fact, if this data is as of the end of last year, I believe the result of this data should be the same.
We compare its returns with MSCI’s national index in each country, and we find a more interesting phenomenon. As we just mentioned, in all these places, the median funds in the past year, three years, five years and 10 years from the end of September last year, that is, no matter 1000 or how many funds, the funds in the middle all lost their respective national indexes in all these periods. If we define that as the performance benchmark, then the median fund is underperforming the performance benchmark.
Then there are only two exceptions. One is offshore China, which is a kind of fund that can invest in a shares, Hong Kong and American Zhongyu shares. In the past 1, 3, 5 and 10 years, half of these funds have won. The second is China’s A-share market. Its median fund has not only outperformed the performance benchmark in the past 1, 3, 5 and 10 years, but also outperformed by a considerable margin.
This tells us that China is still a market dominated by retail investors and is gradually moving towards institutionalization. In fact, it is quite possible to pursue excess returns. Secondly, it is more challenging for our fund managers. It is not enough to beat the performance benchmark. If you beat the performance benchmark, you may not even rank in the first half of all funds.
Moderator: OK, president Xu, you also gave a lot of data to confirm that China may be the only market in the world with large alpha. We investors are actually very concerned about the market situation this year. Can we still make money? What do you think of the market this year?
Xu Lirong: I think the important driving force this year is the return to the mean value, so some growth companies that performed well last year, such as some companies in small and medium-sized markets, I personally think this year may still be in the process of valuation return. However, for some companies with low valuation, such as some high-quality companies represented by Shanghai and Shenzhen 300, I think their corporate profits have an obvious growth trend from this year’s situation, including the situation in the next 1-3 years. The valuation of these companies fell to a certain extent last year and this year, which I think is more attractive. Therefore, I will be more confident about these companies
Moreover, I think we have actually entered the situation after three or four years of continuous rise in the market. Many people may ask this question: is the bull market coming to an end? I think this thinking actually needs to be updated appropriately.
Five or six years ago, our A-share market was very clear. There was a bull market first and then bull stocks, because everyone rose and fell together, but the range of rise and fall will be different. However, since the changes began five or six years ago, I think this change is closely related to the changes in our macro-economy. Because our macro-economy has now dropped from a very high rate of growth to a relatively low rate of growth.
But if you pay attention to the growth rate of our macro-economy, the volatility is now very low. We always joke that the fluctuation of “seven up and eight down, five up and six down” is very small at present. Back in our real world, what is its reaction? In fact, in real life, the opportunities for individuals and enterprises to make fast money have been greatly reduced and the probability has been greatly reduced. In fact, this means that in a considerable number of industries, the increasing trend of industry concentration begins to show. In the first or second place in the industry, their market share is constantly improving, and then their market share is constantly expanding, its return on net assets can be maintained or even expanded.
This is the most ideal investment among all the investments in textbooks. That is to say, the concentration of an industry is increasing, so the leading enterprises you invest in can get high returns. But this rarely happened in China five years ago, but now we have observed this phenomenon in more and more industries.
so I think it’s important to ask whether there will be a bull market in the future. One observation point is to see if we have so many high-quality enterprises, which can continuously expand their market share in their respective sub industries or in a larger industry, and can continuously maintain or even improve their return on net assets, If there are more and more such enterprises, I think our answer is yes. So in fact, there are bull stocks first, and then there is this bull market
Looking back at the short-term market this year, I think the macro challenges and pressures this year will be relatively large. The first challenge is that the United States has actually entered a cycle of raising interest rates, because US stocks have also risen for the 14th year, and it will certainly face the pressure of adjustment, and the US economy and stock market are also a leader in the world in a certain sense. Under such circumstances, when it is adjusted, it may have some impact on the world, including China’s Hong Kong market and our A-share market.
Second, the current economic cycles between China and the United States are obviously different. In the face of the covid-19 epidemic, we did not adopt the American way of throwing money. In fact, we retained our own macro-control resources and capabilities. Therefore, our current economy will be gradually released, including loose monetary policy, steady growth and so on. In fact, our economy is in an expansion trend supported by steady growth.
However, just now we mentioned that the US economy is a closed trend in terms of policy. In fact, such a combination is relatively rare in history. It is equivalent to that the United States is in the process of raising interest rates, and may increase interest rates continuously and rapidly, while China may be in the process of reducing or reducing interest rates, and should reduce interest rates. What kind of impact this will have on the whole stock market and asset market may be something that all of us who invest, including everyone, must face.
because we invest from bottom to top, the macro level may only be our perspective. My own view is that at present, we are likely to enter a model of the so-called “big country economy”. What is a model of big country economy? In the popular words now, it is “give priority to me”. In other words, our own economic fundamentals and our own monetary policy fundamentals may determine a trend of our stock market and our capital market to a greater extent. This is the so-called big country model
The United States must still be the leader in the world, and its influence must be there, but this influence may be different for us than before. To make an inappropriate analogy, once the United States raised interest rates, capital began to flow back to the United States. Maybe money will be drawn from various emerging markets and part of it may also be drawn from China.
However, as soon as the United States tightens, China may perform better. In my personal judgment, it is likely that the money will be withdrawn from other emerging markets, most of which will flow back to the United States, but some will flow to China.
From some data, we can observe that last year, China’s exports exceeded expectations to achieve a growth rate of more than 30%. At the same time, with the appreciation of about 7% of our basket of currencies, the record high growth of foreign capital and the strong RMB, these are combined with the competitiveness of enterprises we see now, I think they may all vaguely point to this big country model.
So looking back, I judge by myself that these macro uncertainties, including geopolitical tensions, will cause certain disturbances to the market, but I don’t think they are enough to change the direction of the market. In terms of the overall direction of the market, I still prefer some companies with low valuation and high quality, which may still have a better performance in the whole year.
As far as the whole Hong Kong stock market is concerned, we may be more optimistic, especially for some companies in technology and Internet. We feel that there is a trend of over correction in the overall adjustment of policies this year, and the fundamentals of these companies have a good trend. Therefore, we will be more optimistic about these companies and the Hong Kong market.
Moderator: what investment themes do you think you will pay attention to this year under the economic model of such a large country?
Xu Lirong: because we adopt a bottom-up stock selection strategy, we may look for some companies that we think can create excess returns in various types of industries, such as the popular theme of steady growth, or new energy, finance, etc.
From a top-down perspective, because I have no top-down judgment, it may be difficult for me to answer. I think which industry or company will perform better. I think structural differentiation will still exist in this market. In the future, people will hear less and less of the so-called “style transformation”.
before, the most frequently mentioned thing was “style change”. Whether to change from “value” to “growth” or “growth” to “value”. I think this kind of discussion may be less and less in the future compared with the past, because the future world will be more similar to a parallel world, that is, everyone makes their own money. I believe that even in such a situation this year, there are excellent growth investors who can earn the excess returns they can earn. Value investors may still make the money they can make last year or even this year. So I think everyone makes their own money, and the market of structural differentiation will continue
Relatively speaking, what may be more promising in all aspects of the sector is the relatively high-quality Internet companies and technology Internet companies we just talked about. The high-quality technology Internet may be more concentrated on the Hong Kong stock market.
Moderator: in fact, you just mentioned that you are full of confidence in the future of bank stocks. We can see that there has been a wave of performance of bank stocks since this year, and some stocks are close to such a high point in history. Do you think the next bank stocks will continue to make efforts?
Xu Lirong: personally, I don’t think bank stocks will have such a large excess return if we look at it from a full year perspective. Because banking stocks, including some high-quality banking companies we invest in, in fact, what we earn now is mainly its profits. Because it maintains a relatively high return on net assets, it may have a growth rate of return of 10% – 20% every year. In fact, its valuation is fixed, and I can basically earn 10% – 20% of its income every year.
but in terms of the valuation of the whole industry, the valuation of the whole Chinese bank, as we discussed earlier, is still in a relatively low position compared with the emerging markets all over the world. However, its valuation may gradually return to a more reasonable position from very low to the future, which is a relatively long process. I think this will be a relatively long range and will not be completed in a very short time. So I don’t think there will be a trend, such as the sharp rise of banking companies
Maybe now, after many people withdraw from the growth companies, they feel that the funds must be in one place. At the same time, they feel that the banking companies may be a safe haven for the time being. Therefore, some funds actually enter the banking sector for this purpose, so its short-term performance will be better. But throughout the year, I don’t think it will have a very good performance of absolute or excess return.
Moderator: compared with the banking sector, the performance of some non bank financial sectors seems to be slightly weaker. Then why is there such a big gap between banks and non bank finance? How do you think the whole financial sector will interpret under the next big pattern?
Xu Lirong: we think that some excellent companies can be selected in the whole financial sector. At the same time, the characteristics of banks and non banks are different.
I often use this metaphor. A bank is like a fund manager of the whole macro-economy, so what it needs to do is to allocate in all fields of the whole macro-economy. If it can do well, it can allocate more assets in fast-growing industries, such as lending, such as wealth management, and so on. Obviously, its combination can have a better income. In this case, even if our macro-economy is a relatively pessimistic assumption, we can still have a relatively high growth rate. Therefore, the operating stability of a well run bank is relatively high.
However, non bank financial institutions, taking securities companies as an example, will have higher correlation with the capital market and higher beta. As we all know, the whole quantification was very popular last year, and the trading volume of the whole market was also very active. Small and medium-sized tickets and growth stocks were also a bull market trend. In such an environment, as the main intermediary of the whole capital market, these companies of securities companies will have a better profit performance in all aspects. Whether it is its economic business or its self operated business, the whole margin lending business will perform very well.
However, according to our previous discussion, compared with last year, this year is slightly weaker at all levels, so on the margin, there will be some pressure on the whole industry, which is why we can see that the performance of such companies has been relatively weaker since the beginning of the year.
As for the insurance industry, it more reflects the current development of the industry. It is now going through a consolidation stage of the industry. At the same time, it is facing the impact of the reduction of brokers and insurance agents, as well as the relevant systems implemented by the state, such as centralized procurement, which will have a certain impact on the insurance industry. After this shock, in the long run, some high-quality companies still have a better opportunity.
host: let’s talk about the industry with the highest attention now, the new energy track.
In fact, compared with last year, there has been a wave of adjustment of new energy this year, and the market has also had a divergence of views on the track of new energy. Some fund managers believe that if last year was a beta market, this year may be more alpha. Do you agree with this view? What do you think of the new energy track?
Xu Lirong: I believe that some new energy companies will still have alpha market, but I am still relatively cautious about the whole field of new energy.
I very much agree with the long-term growth trend of new energy. I think it is also in line with the investment direction of ESG, and there is obviously a large space for long-term growth. However, with strong support last year, the super performance of stock prices in such industries actually overdraw the growth in the next few years in a certain sense. In this case, in fact, investors will have some very strict requirements for his medium and short-term growth in the future. When you fail to meet these requirements, it will kill the valuation, which is reflected now.
Moreover, we need to consider a deeper level. Although new energy is a long-term growth industry for 5 to 10 years and 10 to 20 years, the growth industry does not have a cycle, and it will also have periodic fluctuations. I think new energy is now facing such a situation. When the sales performance last year led to the whole industrial chain, you will see that more and more capital outside the industry began to invest in this field. From the most upstream of new energy vehicles to intermediate materials, intermediate parts, and then to terminals, more and more social capital entered this industry, which actually means the intensification of competition.
The intensification of competition in many fields in China means that short supply may quickly become oversupply, and even start a price war. Although I think new energy is a long-term growth industry, this situation will also occur in the medium and short term. We used to invest in more photovoltaic companies, which is actually such a phenomenon. From a long perspective, it is a good growth industry, but in a short cycle, it may be very dangerous.
for China’s new energy industry, I think the observation perspective still needs to start from the growth rate of the whole industry. For example, if the growth rate of new energy will still be relatively fast this year, from a negative perspective, does it mean that the growth rate from 2023 to 2025 will definitely come down, because this is a natural assumption. Of course, it still depends on what perspective you look at the problem
so I think from the current situation, the market sentiment, the fundamental changes, the valuation performance and the fundamentals of listed companies all point to one point, that is, the overheated sentiment. So I’m relatively cautious
Of course, we will also look carefully here, hoping to find some high-quality companies that meet our stock selection standards and can grow continuously.
Moderator: we also see that the market has experienced a round of significant adjustment since this year. Many fund managers think that it may be a suitable time to build positions. What’s president Xu’s opinion? Do you need to wait and see, or do you hold the same view?
Xu Lirong: I think it is a better time for investors to enter the market after this adjustment stage.
Because in the long run, I am quite confident in the market in the next 3 to 5 years or even longer. As a stock selection investor, when I can choose more and more companies of this type, I will be more confident in the market. The current decline, in the long run, I think it must be a better investment opportunity.
But for professional investors and retail investors, the opportunities may be different. For professional investors, what we need to distinguish is whether we can buy companies that perform better in this structural differentiation environment if the market performs better in the future or there is a structural differentiation market.
But retail investors and ordinary investors may face this problem, that is, you buy the right index, but you may not make money. For example, if you think growth stocks have fallen a lot, I’ll buy some industry funds or theme funds of growth stocks. Maybe the index is low in the whole year, but maybe the theme funds of the industry you “copy the bottom” or growth oriented funds may not have a good performance in the future.
Therefore, I would suggest that ordinary investors, if you have strong knowledge and views on the industry, you can choose some theme funds, such as growth oriented funds, even ETFs or active funds, and find fund managers you agree to invest according to your knowledge and views on these industries. However, if you may not have strong confidence in this aspect, or you think you are likely to make a wrong judgment, a better way may be to choose such a fund that you think can create excess returns for you for a long time, which may be a better choice.
Moderator: if such investors pay more attention to timing, which type of fund is more suitable for them?
Xu Lirong: I personally think that if we pay more attention to timing, the first type of fund may be more suitable. The reason why you choose the time is that you think it will rebound if you fall too much. Then you hope that these funds you choose can outperform the index or even significantly. At this time, the challenge for investors is to pick the industry that will rise well when it rebounds, or the fund managers or funds that will focus on matching and are good at matching this industry. I think this is the challenge for such investors.
Moderator: thank President Xu for providing us with some suggestions on buying a fund. We also know that you are one of the few strong investment veterans in the current market with more than 15 years of fund management. What do you think you pay more attention to as an excellent fund manager?
Xu Lirong: I think there are mainly several aspects. First, I think we should be more responsible sense of responsibility may be a little empty, but because the essence of our fund industry is managing money on behalf of customers, and the cost of establishing trust in China is actually relatively high, so the establishment of trust is actually more difficult. A good investor, you must have a strong sense of responsibility in the process of managing money on behalf of customers. That is, your idea of managing customers’ money should be the same as that of managing your own money, rather than managing my own money. I am very cautious, but I am very bold in managing customers’ money. So I think the first point is to have a high sense of responsibility.
second, I think we should be full of curiosity, that is, we should ask more why and what caused it.
for example, blind boxes, hand accounts and two-dimensional elements are very popular among young people. For me, 70 later said that many things may not be what I will participate in. If I hold the attitude of exclusion and have no curiosity to study why you are interested in these and whether there are some investment opportunities, it is impossible to find them. So I think we must have this curiosity, which I think is the second and most important.
third, I think it is very important to have an independent thinking ability this independent thinking ability is actually more challenging, because you will face great pressure in fund management. This pressure may come from your requirements for yourself, the requirements of the holder for you, and the expectations of the company for you. However, any investment has ups and downs, so when you perform poorly, you may blame yourself, your holders may have opinions, and even question you face to face at the investor meeting. So under such a huge pressure, if you can maintain your independent thinking, I think this is a very key ability.
Because independent thinking can ensure two aspects. The first is that you don’t have excessive paranoia. I have always believed that good investors find a balance between paranoia and flexibility. Everyone’s balance point is different. A person who is too paranoid may not be a good investor, but a person who is too flexible is certainly not a good investor. Therefore, generally good investors tend to lean a little closer to paranoia, which is my personal view. I think it’s very important for you how to keep your independent thinking and don’t let yourself be too paranoid.
The second is that your independent thinking can let you see some problems behind it. For example, we are talking about some companies that we are passionate about. Maybe you can see some risk points, and you can see some other places that we are unwilling to pay attention to or disdain to pay attention to.
finally, I think diligence is essential diligence doesn’t necessarily mean how many places you have to run. It doesn’t necessarily mean diligence in this sense, but diligence in your thinking. You must be diligent enough in managing funds, whether it’s research, discussion or thinking, so as to achieve a fair result.
host: besides curiosity, independent thinking ability and diligence, in fact, the state of mind in investment is also very important, because in fact, if your state of mind collapses, your investment collapses. How do you maintain a good state of mind in investment?
Xu Lirong: I think this is actually very challenging for fund managers, especially younger fund managers. I often give psychological massage to our young fund managers, because investment is under great pressure.
From my own point of view, I think there are mainly the following aspects. First, I may read more miscellaneous books, and also read all kinds of magazines and all kinds of American dramas. For me, this is equivalent to distracting some attention and maybe reducing some stress. Another part is that watching American dramas, reading novels and reading some miscellaneous books can help me better understand human nature.
In my opinion, this is a reflection of the whole society in the capital market. Society is made up of people. The clearer you understand human nature, the deeper you understand the pressure you face, so you can better coexist with pressure.
In fact, I have never advocated to carry the pressure, because carrying it means that you may not be able to carry it. When you can’t carry it, you will collapse. I think a better way is to coexist with pressure. But in the case of coexistence, we should not let the pressure have too much impact on ourselves, and we should also be able to live a normal life.
To sum up, in the face of pressure, first, I may use a wider range of hobbies to distract my attention. With my understanding of human nature, I may have a clearer understanding of the source of pressure. In this way, I can reduce some pressure, which is one aspect.
The second aspect is related to age and values to a certain extent. Our business is actually quite interesting. If you don’t pursue and love money, it may be difficult for you to make a good investment. However, if you are too extreme and want to make money too much, you must make fast money and short money. In the long run, it is difficult for you to do well. Therefore, there may also be a balance, that is, the so-called gentleman loves money and takes it in a right way.
I think an important way to keep a good attitude is to earn the money I can earn. In this way, when I make a combination and choose my life and work, my mentality will be compared and balanced. I believe that driven by unbalanced power, I will certainly do some action deformation operations. Therefore, I hope to grasp what I can grasp and earn what I should be able to earn.
I often give researchers an example. We Chinese all know the story of Tian Ji horse racing, but in real life, many people actually do the opposite in terms of investment choice, life choice, spouse choice and so on. When making a choice, you first recognize your strengths and weaknesses. As long as you think about this problem clearly, the result will not be bad.
Finally, I think it may also be related to personality. Some people may be more perfectionist. It may be more challenging for such people to maintain a better attitude. But as far as my own personality is concerned, I don’t think I belong to perfectionists, so it may be easier to maintain a good attitude.
Moderator: you just mentioned that the interesting point is to understand human nature. We also see that there are many investment leaders now. Then, which one do you personally admire most among these investment leaders? What characteristics do you appreciate about him?
Xu Lirong: relatively speaking, I may appreciate Peter Lynch. I think Peter Lynch is a bottom-up investor, and he is very diligent. Many people still use the “turning stone” theory he put forward. He manages such a large fund by himself, and his understanding of this problem is relatively clear. I appreciate his method.
Moreover, when Peter Lynch’s work was relatively high, he felt that because of his work, he invested a lot less in his family, so he chose to spend more time with his family at that time, and then entrusted the investment to other people. I think I admire this choice very much. I think making this choice shows that he has a clear understanding of many problems. So I like Peter Lynch relatively.
Moderator: if you are not a fund manager, what type of career would you choose personally?
Xu Lirong: I don’t know. Maybe I will play Dezhou poker, because I think Dezhou poker is very similar to investment – all decisions are made according to a certain probability. But one thing that may be different between investing and playing Texas poker is that Texas Poker will actually have many opportunities for trial and error. You can control your buying at different stages, and then have the opportunity to try and error many times. After thousands or tens of thousands of trials and errors, you can achieve a stable profit model.
But in the investment, in fact, every investor, whether individual investors or as professional investors, doesn’t have so many opportunities for trial and error. If we can choose dozens of companies a year, you will choose hundreds of Companies in 10 years. In other words, you may have hundreds of trial and error opportunities at most. Therefore, you may need to weigh and consider more factors in investment. In the field of Texas poker, there may be less factors to consider.
If I do the event with the right probability in de Pu, I may have a great chance of winning after a thousand or ten thousand times. But in the field of investment, if you do the same, you may have been eliminated before your probability of winning appears.
Moderator: when talking about investment, president Xu mentioned the word diligence most. In fact, investment also needs to be learned slowly. Finally, can you recommend an investment book you like to our investors.
Xu Lirong: I will recommend you to read the Memoirs of stock writers. I have read this book several times by myself. I think it is very helpful to understand the market and human nature.
Moderator: OK, thank President Xu for sharing. I believe that through President Xu’s wonderful interpretation, we have a clearer understanding of the overall style of the market and this year’s investment strategy. Thank President Xu again.
Xu Lirong: OK, thank you.
Moderator: more wonderful investment ideas can be found in the dialogue program of China fund daily. We will also release the excellent text review of the Dialogue Series in the China fund official WeChat official account. The full program video can also be viewed in the China fund newspaper APP live channel. Thank you for your attention! bye!
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