Selling stocks is more difficult than buying stocks, and so is it for fund managers.
In the era of bull stocks pouring out, it is not difficult for everyone to hold bull stocks, and the biggest problem is that after the initial profit, the confidence of further holding stocks may be shaken. Therefore, selling bull stocks has become a common phenomenon, and how to enjoy most of the benefits of bull stocks is a big challenge for many investors.
In this regard, the securities firm China specially invited two blue chip fund managers to have an in-depth dialogue to explain various problems in investment. Among them, Ping An Xinxin pioneer managed by Zhang Xiaoquan, research director of Ping An fund, made a profit of more than 50% in 2021, and Wang Di, financing fund manager, made a profit of 30% in the whole year.
methodology on stock selection
Chinese reporter of securities firm: are there any special elements or specific stock selection framework in the investment mining company?
Zhang Xiaoquan: for an efficient market, we don’t think there is a universal formula for winning stocks, nor can there be a truth that can always make you make alpha. Our research framework and investment framework is to carefully identify whether the value of each stock is undervalued and who has higher certainty and higher upward space among the undervalued targets. Therefore, we will not mechanically refer to Pb, roe, discounted cash flow and other valuation indicators, nor will we make investment from industry configuration, nor will we gamble on a single track.
If you want to summarize, the core is to buy and sell stocks from the perspective of individual stock value judgment. The market environment is always changing. We should respect the market, fear the market, adapt to the market, not be paranoid, carefully measure the investment value of each excellent individual stock, find a high-quality target that can surpass the market cognition, and make money for investors through our research on individual stock surpassing the market cognition.
Therefore, we adhere to the value investment concept, but our value investment concept is not value investment in the conventional sense. Our stock selection is not limited to a fixed stock selection method, but will carefully compare the investment value of many industries and individual stocks, respond flexibly in combination with the changes of the market environment, and hope that each purchased target can make money for investors, so as to create positive returns for investors as a whole. It may not be so tall, but for us, the original intention is to make money for investors based on the discovery and mining of the value of the company and stocks.
Wang Di: I pay more attention to the following points: first, whether the company’s core competitiveness is deep enough and sustainable enough, short-lived competitiveness, short-term competitive advantage and short-term shortage of supply bring about a sharp rise in prices. I don’t think it is a competitive advantage. I pay more attention to the company’s long-term cost control ability, product strength and brand strength. With the continuous growth of scale, The management can continuously iterate the organizational structure and improve the management efficiency, which are my most important sustainable corporate competitiveness.
These elements should be reflected in the company’s financial statements. You say that you have strong product competitiveness, sufficient profitability as a support, long-term and stable roe to represent the moat of the industry, and good enough cash flow capacity. On the one hand, you should have a strong voice in the upstream and will not be suppressed too badly for downstream customers, The final result is that the ratio of operating cash flow to net profit should not be too different. A really good company has been reflected in the financial statements, or its judgment will be reflected in the financial statements. The financial statements are very good feedback on the competitiveness of the company.
Buying or not buying involves the price level. I think really good companies themselves are a discount. I always have a feeling that the market always has a discount for really excellent companies. People often give an industrial valuation range for the valuation of excellent companies, but in the end, it will be found that the probability of their performance exceeding expectations is much greater than that of small and medium-sized companies, As long as the valuation of the best company is within a reasonable range, I will buy it. I never expect a good company to be particularly undervalued. The excellent company itself has a discount, and I will buy it within a reasonable range. This is basically a bottom-up analysis, which expounds the industry elements, company elements and price elements.
There are three points from top to bottom: first, where is China’s comparative advantage? The comparative advantage between countries. Japan is strong in materials, and the United States is strong in cutting-edge innovation, medicine, etc. China’s advantage is also very clear, that is, the manufacturing industry brought by the strong engineer bonus. The industrial chain is very complete, the engineer bonus is huge, which can last for at least 20 or 30 years, and the manufacturing workers are mature enough. Looking at the whole situation, the life cycle of China’s manufacturing industry will still be very long. Although the low-end manufacturing industry, such as clothing, has gradually shifted to Southeast Asia, the vitality of the middle and even high-end manufacturing industry in China will be very tenacious, and the middle and high-end manufacturing industry in China will have long-term dividends.
about the buy and sell of “high” stock price
Chinese reporter of securities firm: can a good company afford to buy at a high level? Is it difficult to confirm the “high” selling point?
Zhang Xiaoquan: we also encountered the situation that stocks were selling at a “high level”. For example, there was a stock last year. We judged that the market value of nearly 100 billion was almost the same. According to its annual profit expectation, we thought that it was high enough to increase the valuation to 30 times under the market environment at that time. After selling, it doubled again. Later this kind of valuation bubble is relatively hard to make money, we do not worry about not making money, we put more energy to tap the higher certainty of stocks.
Of course, we have also encountered the situation of re buying at the “high level” and making a lot of money. If you sell it and buy it back at a higher price, you need to have a stronger psychological tolerance, and the test of human nature should be more strict. About four years ago, I bought a bull stock at a major turning point at the bottom and sold it after making a profit of almost 50%. At that time, our judgment was that the valuation repair had been completed and the deterministic money found in the bottom value had been made.
However, after the sale, the fundamentals of the stock continued to strengthen more than expected, and the share price has been rising. We did in-depth research on this stock again and re priced it according to the changed industry environment and company fundamentals at that time. Finally, after the stock doubled the selling price, I bought it back. I did make a lot of money later and sold it.
The essence of investing in stocks is to buy when they are undervalued and sell when they are overvalued, so as to make money for investors. Holding stocks is the time cost paid to make money. The perfect situation is that you should sell high and buy low in each band. In theory, if you can do it every time, most stocks can make money, but this is unrealistic. Therefore, we should combine research methods to judge the value of stocks, including industrial trends or the company’s growth trends or the company’s pricing, and participate in relevant subject-matter investment when there is certainty. The overall goal is to buy when undervalued and sell when overvalued, which should be the core essence of doing stocks.
Wang Di: buying low and selling high is the right way, but it is very difficult to do it. Sometimes you question yourself and think you are wrong. Why are so many smart people in the market running away and you still going in? This psychological pressure still needs to be borne. The depth of research on individual stocks can be best reflected at this time.
Therefore, a good company’s long-term stock price performance is generally good, not high or low, but I can accept this valuation, and I think its future growth is very clear, so I will buy it. Many people underestimate the long-term growth power of truly excellent companies, and the difference in short-term growth power will not be too great. However, in this process, people often sell these seemingly excellent companies because of the temptation of other companies and other information, and feel that they have risen in place in the short term. In fact, in the long run, the growth rate of these companies is probably greater than that of small and medium-sized companies.
This is also my experience and lesson. During the five years before 2015, I saw a large number of small and medium-sized companies with market value. At that time, I had a preconceived superficial concept and thought that small companies should naturally grow rapidly because they are small and easy to study. There is only one product. Unlike the product lines of large companies, it seems very hard, but the facts have proved that this idea is wrong. At that time, I probably didn’t like some relatively large companies. Didn’t I think they would grow by 10% a year? What’s the point? If the valuation does not fluctuate and only increases the performance, the annual yield will be 10%. However, if we look at the yield ranking of the whole auto industry in a five-year cycle, these auto industry leaders are at the top.
A shares have a special feature, which advocates investing in companies with explosive growth in short-term performance. I think this is no problem, because short-term growth is often easy to be extrapolated linearly. This is human nature. You have doubled in the short term, and you are optimistic about the growth expectations for next year and the next year, but it is unrealistic to think calmly and objectively, No company can maintain the perennial growth of dozens of years. Let’s talk about the data. I have pulled the best companies in the 5-10-year cycle of a shares. The compound growth rate is 20%. It is rare for stocks that can rank in the top 3% and top 5% of all A-Shares to have such a compound growth rate. A few of the best companies can achieve a growth rate of 30-40%, which is very rare and basically impossible to meet. Many people still ignore the long-term growth power of truly excellent companies, which is the art of compound growth.
about being bought by deep arbitrage
Chinese reporter of securities firm: if you buy stocks and fall by 20%, what would you do?
Zhang Xiaoquan: if the basic logic of buying individual stocks has not changed and the position has become more undervalued, you should not sell but increase your position. Because your winning rate is higher, you might have expected to fall by 20 points when you bought it, and there is room for 60 or 70 points upward. Now it has fallen 20 points, there is twice the space upward, and there is almost no space downward. Shouldn’t you buy this position more heavily? But in this case, you must examine the investment logic, whether the fundamentals have changed, and the correctness of the initial buying logic. If you are sure to buy wrong, stop loss. If it is found that the logic has not changed after the study, the location space will be larger and should be increased. So we should pay attention to whether the risk return ratio of individual stocks has become higher. Or can we find a higher target than its risk return ratio. You can understand it as a beauty pageant, always selecting the most beautiful stock in the current environment.
Wang Di: the rise and fall of share price does not have a great impact on me. The core depends on whether the company’s fundamentals exceed or are lower than my expectations. It is more judged by combining the company’s fundamentals and valuation. If the fundamentals do not change and fall by 20% and 30%, I am quite happy. It is an opportunity to increase positions.
I bought a stock before. It once fell by 40%, and the fundamentals have not changed. I am optimistic about this direction and will continue to hold it. Finally, the stock price will come back, and my fund has made a lot of money. Therefore, when the fundamentals are not big, falling is an opportunity to buy. Historically, as long as you can overcome human nature and fear, buying is the best way in the process of falling without changing the fundamentals, but it needs to overcome human nature. On the contrary, in the history of my operation, I also have some experience of chasing up, the effect is very poor, and the experience of chasing up is not very good.
Chinese reporter of securities firm: there are many new energy in the position in 2021. Will you continue to hold it?
Zhang Xiaoquan: what we essentially pursue is to earn returns for investors. Holding is the time cost paid to earn income, so we will not adhere to it for the sake of persistence. When the fundamentals and market change, we will make corresponding adjustments in time. In 2021, we bought a lot of cyclical stocks and also a lot of new energy stocks. We buy both the new economy and the old economy. As long as the value is underestimated or the future space is large enough to bring us reliable returns, we can enter our research vision. It essentially depends on which stocks we think have a higher risk return ratio at the current point in time.
When the prosperity of an industry is high, it should be studied and invested. At the same time, it should be sold when its outlook deteriorates or when the industry trend reverses. In the short term, new energy is very bullish, rising very fast, and has a little overdraft for the future. If we find many new and more cost-effective stocks at this time, we will adjust our position. However, it must be noted that carbon neutralization is the most important investment direction in the next 5-10 years and the general industrial trend that we will maintain investment for a long time. For such a long-term industrial trend, we must maintain our concentration, hold high-quality targets for a long time as possible, and resolutely take heavy positions when the price is appropriate.
Wang Di: I will increase and decrease my positions moderately. I will sell those that are too expensive, but there are also some companies that were originally expensive and have fallen a lot. I will still buy some when the fundamentals have not changed.
The primary factor of selling and buying is that I think there will be some changes in the structure of new energy vehicles in 2022. Q2 and Q3 will fully deduce the logic of material price rise in 2021, and 2022 will basically come to an end, because after June 2022, the production capacity of many materials will come out, and the price elasticity will gradually weaken. In 2022, I return to the logic of volume. I am relatively optimistic about power batteries and lithium battery equipment. There is no price increase diaphragm and downstream vehicles in 2021. These links are more prominent areas of structure in 2022, and the competition pattern is very clear. Many excellent customers prefer to wait for the batteries of leading companies rather than buy the products of second-line power battery enterprises. At present, it seems that the product gap has not been significantly narrowed. I think the leading new energy companies will maintain a significant long-term competitive advantage over the second-line companies.
In addition, there are some excellent companies in the new energy field with obvious competitive advantages. These companies basically don’t have to worry about short-term stock price fluctuations. There will always be two or three or one or two emotional drops in stock prices a year, which is actually a better position building opportunity.
(brokerage China)
