Guest introduction: Chu Yufeng, master of financial mathematics from Columbia University, is currently a strategic researcher of CCB fund, responsible for the research of A-share market strategy, covering liquidity analysis, event driven research, etc
For a long time, Buffett’s investment logic has been deeply sought after by the market. How to judge a valuable company? How to understand long-term holding? What should we pay attention to in A-share investment? In this regard, CCB fund analyst Chu Yufeng shared wonderful views with you.
Chu Yufeng said that for investors, the most important thing comes from value. We should correctly judge what company is valuable, and only hold it until the moment when the company cashes in. The concept of value investment itself does not need to rely on the overall environment. What we are talking about is the wrong pricing of the market. In a highly volatile market, we need to well control our positions.
following is the text essence:
\u3000\u3000 1. CCB fund Chu Yufeng: long term holding based on the company’s value
question: 2022 Buffett’s general meeting of shareholders has been held. Are there any quotations that impress you over the years?
Chu Yufeng: Buffett’s shareholders’ meeting has always been a focus in the field of value investment. Investors generally have a more in-depth understanding of Buffett’s concept.
What I would like to share is that in 1984, Columbia University invited Buffett to give a speech. At that time, on the 50th anniversary of Graham’s securities analysis publication, the concept of value investment had become rampant in the United States in 1984. In this context, Buffett gave a clear explanation of his investment philosophy, which also established Buffett’s position as the successor of value investment.
When it comes to deeper quotations, I would like to cite the example cited by Buffett at that time. He said that if all people in the world came to throw coins, there would always be a genius who would hit the coin 10 times in a row, but if all the people who hit the coin came from the same school, then this concept of value must have super significance, which is how value investment feels to us.
In the past 50 years, there have been batch after batch of value investment practitioners, who have achieved excess returns over the market, which is Buffett’s major contribution to the investment field.
question: Buffett said that making value investment is to buy stocks of valuable companies and hold them for a long time. But the reality is more complicated. How do you think ordinary investors can better understand the concept of value investment?
Chu Yufeng: this famous saying is really famous. We extract the two most important words from it. The first is a valuable company, and the second is long-term holding. Let’s first answer two questions: first, what company is valuable and second, how long is it called long-term holding.
For Buffett, we are familiar with a word called safety margin. Safety margin means that the internal actual value of the company is much lower than the price it trades in the market, and the long-term is actually directly related to the safety margin. For ordinary investors, it is difficult to understand where the stock can rise, but when the safety margin is deep enough, as long as it is held continuously, it will produce returns.
In conclusion, the most important thing for investors is value. We should correctly judge what company is valuable, and only hold it until the moment when the company cashes in. The long-term is not necessarily an absolute time, five or eight years. In fact, it can only wait until the day when it is cashed. If you buy today and cash it directly after three months, the long-term is always closely related to value.
\u3000\u3000 2. CCB fund Chu Yufeng: value investment does not completely depend on the environment
question: has Buffett’s value investment philosophy inspired your investment research work?
Chu Yufeng: I am a strategist, which is actually different from ordinary industry researchers. Industry researchers generally pay more attention to specific stocks and look for the source of mispricing by the market.
My job is to study the rotation between various industries. Take this year’s market as an example. At present, some industries that have been highly sought after by everyone have fallen a lot, and there are many new energy tracks that we pay close attention to.
As a strategist, the most important question we want to answer is whether these industries have formed the marginal value and the safety margin of Beijing Zhidemai Technology Co.Ltd(300785) entry, as Buffett said.
In our daily work, a very important item is called industry comparison. The so-called industry comparison is to see whether the actual valuation of each industry matches the maturity of fundamentals, and whether there will be inaccurate or incomplete pricing caused by excessive pessimism or optimism in the market.
Buffett’s philosophy guides our daily work and research to a great extent. Although many of the tools we use are different from those in the book securities analysis, the concept is the same.
question: there are also some arguments about the value investment market. Some investors say that Buffett can continue to beat the market, which has a lot to do with the long-term bull trend of US stocks. This is different from our investment environment. What do you think of this?
Chu Yufeng: this issue can be discussed from two perspectives. First, what does Buffett’s look like? It is true that U.S. stocks are a long-term bull market, especially at Buffett’s age. He has experienced basically the whole bull market of U.S. stocks, but its performance is not only the same as that of U.S. stocks, but also has achieved a lot of results beyond the performance benchmark.
If we carefully split Buffett’s performance, it can be divided into two parts. First, when he was relatively young, American stocks did not go out of a complete bull market at that time. Especially in the 1970s, the stagflation period in the United States, like the current A-share, had a lot of sharp rises and falls.
Therefore, the concept of value investment itself does not need to rely on the overall environment. What is discussed is the wrong pricing of the market. Occasionally, the market will sell something of great value at a very low price, and smart investors will pick up the opportunity brought by this so-called market.
Combined with the overall background, Buffett did make a profit beyond the average investor’s ability in the whole process of being a U.S. stock leader. This profit must be related to the overall position control concept. Why do you say that? Because in a long-term upward market, the position is not particularly important, but in a highly volatile market, it is necessary to control the position relatively well.
So we think that if we really want to learn the value investment concept, it is more important to learn its essence, rather than copy all Buffett’s principles or Buffett’s operation itself.
There are many differences between the A-share market and the US stock market, but we should see that in the case of similar market participants, as long as it is an insufficient or irrational market, there will always be such a link of wrong pricing. To a large extent, Buffett tells us to seize the opportunity of wrong pricing, rather than a rigid investment concept, so his concept itself also has a strong reference significance for A-Shares
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