Which is more important, research company or research market?

Keynes, the economist who makes the most money.

Keynes is known as the pioneer of macroeconomics, but few people know that he is also an investment expert, from 1920 to 1946, he suffered the worst economic crisis in history, the annual compound rate of return still reached 13%.

He has an investment theory of a "beauty pageant", which is written openly in Chapter 12, "long-term expectations" in his most famous work, the General Theory of Employment, interest and money:

The investment of professional investors is like a beauty pageant in a newspaper, in which participants are asked to choose the six most beautiful photos out of 100, and the person who is closest to the six photos chosen by all the participants is the winner. Thus it can be seen that what each participant chooses is not the person he thinks is the most beautiful, but the person he imagines that the other participants want to choose.

From this point of view, Keynes' idea is very close to "trend speculation". What he means is that it doesn't matter how much a company is actually worth, but how much it is worth in everyone's eyes.

However, judging from his later experience, several of his most successful investments abandoned this speculative idea of "drumming and spreading flowers". Why is that?

Today's "Investment experience" series starts with Keynes'"beauty pageant theory".

Price difference caused by time difference

There is only one action in a beauty pageant: to cast a vote; andInvestment consists of two actions: buy and sell, in which time is often the decisive factor.-- the economic environment will change, and companies will get new orders, develop new products, expand new channels, and may encounter the "Black Swan" incident....

I once made a point:The first step of all value investment plans must determine the length of time.

For example, suppose it is the mid-reporting period in 2020, and if your investment logic is that the performance will be released in the second half of the year, then its stock price will certainly reflect this performance no later than when the annual report is released in March and April next year at the latest. So this is a mid-line investment that is planned to be sold in about half a year.

The time difference brings the price difference, which is the most imaginative place of value investment. So,I'm also going to introduce the time factor and change Keynes's example.

If all the 100 photos you have now are girls under the age of 10, they will take part in beauty contests one after another in the next few years, which is still a popular vote, but you have to bet on the gaming company now.

It's getting harder. To know whether the odds offered by bookmakers (that is, current valuations) are reasonable, you need to predict two things:

First, will the girl be more beautiful or uglier in a few years' time?

Second, eight years later, what are the public's aesthetic standards?

These two factors are equivalent toThere are two major factors that affect stock valuation in value investment: future growth and market style preference.

Let's take a look at the common characteristics of growing companies.

3According to 5, several factors affecting growth

If you want to predict her future from an undeveloped little girl, it is obvious that there is no way to win.We can only look for ways with high certainty.

Method 1: only choose the prettiest among the ten-year-old girls with the upper age limit. Because the older the age, the smaller the change, which is equivalent to the excellent white horse stock in the stock market. But everyone will vote for this kind of girl, then the bookmaker will certainly offer very low odds, which is equivalent to the higher valuation given by the market.

The greater the certainty of the future, the higher the valuation relative to stocks in the same industry.The leading company in an industry has a valuation premium precisely because of the strong "certainty" of the leading company.

Method 2: find the picture of the little girl's mother, according to the genetic law, the daughter will not be so bad.

This is the "moat" theory.Those with brands, administrative franchises and patented technology are like genes given by a beautiful mother, and their valuations are relatively higher.

The third method is to find some "high winning rate" features.For example, according to experience, the face is good, the leg is long, the skin is fair. The probability of winning a beauty pageant is relatively high.

These are equivalent to looking at some financial indicators, such as high return on net assets, high gross profit margin and low debt cost. It tends to get a higher price-to-earnings ratio than its peers.

These three methods have a common feature, which are all looking for deterministic factors of growth.With the same growth, the higher the certainty, the higher the valuation.

If a stock, if the growth is very good, and the certainty is very strong, is it the valuation of the sky? When it comes to this kind of stock, we should be vigilant instead.

In beauty pageants, some girls grow up early and become more beautiful, so they are easy to attract attention. Popular girls, like high-growth companies in the past few years, are easy to get high valuations.

People have a mentality that they always think that the trend that occurred in the past will continue in the future, but "flowers without a hundred days' bonus", people really change only a few years, and so is the company.Few companies maintain high growth for a long time, and once the growth falls short of expectations, there will be a "Davis double kill" that "kills both valuation" and "performance".

If you choose between growth and sustainability, for example, a company that does not grow for two years after a growth of 100% a year, and a company whose performance has increased by 25% for three consecutive years, the average valuation of the latter for three years must be stronger. This isThe premium brought about by persistence.

So Buffett likes companies like Coca-Cola Company and Xi Shi Candy, which have an average growth rate of only 10%, but can last for decades.

In addition to continuity, continuity is also important.

Do you still remember the child grandma in Tianshan who is constantly rejuvenating in The Demi-Gods & Semi-Devils? Let's assume that the cycle of a child grandmother in Tianshan from six to sixty is five years. If she is allowed to participate in a beauty pageant, at what age should we best bet on her?

The answer should be when she was the oldest, because at that time there must be no one to bet, cheap.

Tianshan grandma is a "cyclical stock". In general, we always want to buy stocks with a low price-to-earnings ratio, but the best point to buy a "cyclical stock" is when the price-to-earnings ratio is high. Because the reason for the high price-to-earnings ratio at this time is that the performance is too poor, the stock price is easy to turn upward.

Cyclical stocks are typically poor performance continuity, when the performance is good, but can not give a high valuation.Therefore, do not invest in the middle line when the price-to-earnings ratio of stocks in iron and steel, cement, building materials, engineering vehicles and other industries is at an all-time low, and the probability of being trapped halfway up the hillside is quite high.

The above methods talk about only one factor-growth, but even if your judgment is accurate, the current stock price will be affected by future market preferences.

4ax 5, market style preference

As we said earlier, there are many uncertainties between buying and selling-the economic environment will change, the company will get new orders, develop new products, expand new channels, and may encounter the "Black Swan" incident.... no, no, no.

Some of these events will affect the performance half a year later, as reflected in the annual report, while others will not affect the performance, but will affect the mood of the future market, thus affecting investors' expectations, which is also called "market style preference".

"Market style preferences" exaggerate the strength and duration of "what is happening".

Or take the beauty pageant as an example, now the "awl face" is the standard of Internet celebrities, then, even knowing that the beauty pageant is a few years away, the "awl face" little girl will still be more popular.

In a bear market, the price-to-earnings ratio of technology stocks will be more severe than that of consumer stocks, which is obviously not because investors' expectations of these two industries have changed, but because their investment mentality is more conservative at this time. Prefer "high-certainty, low-growth" consumer stocks, and avoid "low-certainty, high-growth" technology stocks.

In value investment, we must adjust our investment objectives according to the changes in the market environment and the company itself, so it is difficult to tell which changes will lead to growth and which are just market sentiment, which is the inherent weakness of human nature. just like we can't help but predict whether the "awl face" will be more popular in the market.

But "style preference" is only a quantitative change, will not change the direction of the market, if the wind comes to earn 40%, no wind will earn 35%, the wind is wrong is 30%.

Investment pursues certainty, and the psychological mechanism of "style preference" is too complex.Therefore, I do not advocate retail investors to predict the future "style preference", we just need to know its existence.

Keynes later abandoned his "beauty pageant theory".

The transformation of Keynes

After Keynes put forward the "beauty pageant theory" in his book, he immediately explained why he did not approve of "value investment":

Investing based on real long-term expectations is so difficult today that it is rarely possible to achieve. People's life is limited, and human nature is always quick, so people have a special interest in getting rich quickly, and most people have to make a lot of discounts on what they can get in the future in order to become the value of the present.

Obviously, Keynes just found it difficult to invest in value, which was more humane than speculation.

But in fact, it is not easy to predict the behavior of others.Robert Skidelski, author of the Legend of Keynes, divided Keynes's investment career into two stages. in the early days, he thought of himself as a "scientific gambler", believed in his ability to "predict" and partnered with a friend to speculate on foreign exchange. But it turned out to be a terrible loss.

By the 1930s, Keynes formed him.The new investment philosophy is to firmly hold on to a few carefully selected "pets", overcome panic and buy boldly when the stock market falls. This is very close to the view of Graham, a contemporary value investment pioneer.

In early March 1944, Keynes stated his investment philosophy in a letter:

"I'm sorry for the quarrel on the phone, but the central principle of my investment is to operate contrary to the opinions of the majority. The reason is that if everyone agrees with the advantages of a project, the price must be high and therefore unattractive. "

At this time, Keynes had actually abandoned his "beauty pageant theory" of "following popular aesthetics", although it was written in his most famous book.