From cognition to actual combat, reconstruct investment logic.
There are nine ways to choose stocks
Stock investors all yearn for a bull market, but in fact, a bull market is the root cause of most people losing money.
Because of greed, because of fear.
No matter how good the market, even the bull market, there are ups and downs, every bull market is like this, suddenly rise, rise so that you feel uncomfortable, and finally make up your mind to take a shuttle, win the clubhouse model, and lose to work in the sea-- because the market is too frenzied, many people taste the benefits, feel that they will earn more by leveraging, so they begin to increase leverage.
This kind of mentality, already doomed, you are going to work in the sea.
During the bull market of 2014-2015, statistics showed that 85 per cent of investors with the lowest income lost more than 250 billion yuan in the 18 months from July 2014 to December 2015. the top 0.5 per cent of households received a return of as much as 254 billion yuan.
What retail investors lose is exactly what big investors earn.
In addition to the full number of investors who have opened new accounts at brokerage outlets (the national data for new accounts are only monthly, the latest is in May, which does not reflect the current situation), there is another indicator of the frenzy of market sentiment-the increase and rate of margin lending quota and the rate of increase.
The amount of margin trading has soared every day since May, especially since the beginning of July, the amount of new margin trading has exceeded 100 billion yuan in just one week-by the end of last week, the share of the two financial exchanges in the total market turnover has soared to more than 12%, which is almost the highest level since 2015.
In order to avoid a rapid evolution of leverage levels to the 2015 model, regulators have begun to prepare in advance. Last Wednesday, the Securities Regulatory Commission exposed 258 illegal over-the-counter funding platforms to warn investors, while the Bancassurance Regulatory Commission made it clear last week that banks and insurance funds should be scrutinized for random leverage and hype in the stock market.
The mood is early and so frenzied-and most importantly, despite the sharp rise in share prices and the sharp fall in bonds in the past two weeks, the current stock market valuation is above-average in terms of equity risk premium, not particularly overvalued. Take the CSI 300, which had a median PE of 28.15 last Friday, while our 10-year Treasury yield was 3.13%-the equity risk premium based on the median PE is 0.4%, still in a positive range.
Therefore, there is a high probability that the stock market will be strong for some time, but the current fund valuation may not be suitable for big purchases.
The period that is really suitable for big buying is from the end of 2018 to the beginning of 2019 and from the end of 2019 to the beginning of 2020.
There is a greater need for calm and learning in a bull market. if anyone thinks that the bull market will last and must buy stocks at this time, I am here to share with you an article I have written about how to value stocks.
Price-to-earnings ratio (P / P / E)
The most commonly used indicator of stock valuation is the price-to-earnings ratio (Price/ Earnings), which is equal to the share price / earnings per share (EPS,Earnings Per Share), which indicates the price that investors have to pay in order to earn one yuan of income of the company each year.
The price-to-earnings ratio index is applicable to stocks with stable industry structure, stable corporate profits and general growth, such as extractive, building materials, commercial trade, information services, public service industries, etc., as well as the liquor industry.
Us stocks include Apple Inc, Amazon.Com Inc, Alphabet Inc-CL C, and must die. We have Maotai, Wuliangye, and Industrial and Commercial Bank of China.
The price-to-earnings ratio index is also particularly suitable for wide-base index funds, such as Shanghai and Shenzhen 300, Hang Seng Index Fund, S & P Index Fund and so on. This kind of fund is characterized by dozens or even hundreds of stocks, distributed in various industries. Fund profit is the weighted average of a basket of stocks, which is more stable than any constituent stock, and its growth is also the weighted average of these stocks-- stable earnings and general growth. So you can use PE indicators, wait for low PE to intervene, and sell high PE. For example, if you intervene in the Hang Seng Index Fund of Hong Kong stocks when the PE is below 10, you basically don't have to worry about future returns.
Price-to-book ratio (P / B)
The second most frequently used valuation index is the price-to-book ratio (Price/Book Value), which represents the ratio of the stock price to the net assets per share, which is used to measure the selling price of the stock relative to its existing assets in the market.
Price-to-book ratio valuation index is suitable for industries with a large number of fixed assets and relatively stable book value, but with strong cyclical attributes, such as steel industry, aviation industry, shipping industry, chemical industry, agriculture, forestry, animal husbandry and fishing, food and beverage, steel, coal, catering tourism and other industries, the use of price-to-book ratio index is far more suitable than the price-to-earnings ratio index.
However, the price-to-book ratio does not apply to companies where the replacement cost of book value changes rapidly, nor to service industries with less fixed assets and more goodwill or intellectual property rights.
Bank stocks, especially our big A-share bank stocks, are not suitable for PE valuation, because E is distorted, the PE of banks is very low, but we all know that there are hidden bad debts, which may be high or even E becomes negative once PE breaks out, so bank stocks are valued with PB more reasonably, on the basis of PB, to understand the quality of credit assets, we will almost be able to grasp the timing of buying and selling bank stocks.
For cyclical industries, price-to-book ratios are undervalued when they are below or close to 1, while those above 2 are overvalued.
Return on equity (ROE)
Return on equity (Return on Equity) = corporate net profit after tax / shareholder owner's equity.
ROE is one of the most commonly used indicators of corporate profitability in the stock market. it measures the return on the assets invested by the shareholders of the company. The higher the rate of return on capital, the more effective the company's use and management of capital, the more returns it will bring to shareholders, which is also the most basic indicator to measure the operating status of enterprises.
The basic principle of value investment is "good investment = good enterprise + good price", and the rate of return on net assets is an indicator that combines the two-the CSRC clearly stipulates that when listed companies issue additional shares to the public, the average weighted average return on net assets for three years shall not be less than 6%.
Why is there such a rule?
We might as well think about why the net asset per share of a listed company is 5 yuan, while the IPO price is often much more than 5 yuan, such as 15 yuan (price-to-book ratio is 3). This is because the ROE of this listed company may be much higher than the bank interest rate, so the new shares issued by listed companies at a premium will be accepted by the market.
It can be said that the return on equity higher than the bank interest rate is the passing line for listed companies to operate, and it may be forgivable that the interest rate is occasionally lower than the bank interest rate for a year, but if it is lower than the bank interest rate for many years, the significance of listing the company does not exist. It is for this reason that the CSRC pays special attention to the return on equity of listed companies.
Although in a general sense, the higher the rate of return on net assets of listed companies, the better, but sometimes, too high rate of return on net assets also contains risks. For example, although individual listed companies have a high return on equity, they have a debt ratio of more than 80% (80% is usually considered to be too risky). You have to be careful at this time. Although such a company has strong profitability and high operating efficiency, it is based on high debt. Once there is any fluctuation in the market, or the bank tightens money, not only the return on equity will drop sharply, but the company itself may lose money.
This is like speculating in a house. If the price of a house is 1 million yuan, you only need to buy it with a down payment of 300000 yuan. A year later, the house appreciated to 2 million yuan, sold the house and made a profit of nearly 1 million yuan, with a return on net assets of more than 300%. Although the rate of return on net assets is very high, we should know that this is operating in debt, which is actually borrowing money from the bank (bank mortgage) to speculate in real estate. If the house does not appreciate but depreciates, it will be a big risk. if the house price falls to 700000 yuan a year later, it will lose all the principal of 300000 yuan.
Without considering financial fraud, return on net assets + price-to-earnings ratio, most stocks worth investing can be identified.
When analyzing whether a listed company is worth investing, you can first look at its long-term return on equity. Judging from the performance of domestic listed companies over the years, if the rate of return on net assets can be maintained at more than 15% all the year round, it will basically be a company with excellent performance. At this time to see what its price-to-earnings ratio is, if its price-to-earnings ratio is lower than the market average, or lower than the level of companies in the same industry, the stock can be included in the scope of high attention.
PEG index
PEG (Price/Earnings to Growth Ratio) is an indicator invented by Jim Slater, mainly considering that the PE valuation does not take into account the lack of consideration of enterprise growth, so the growth rate index of enterprise profit is included.
Normally, the PEG measure is divided by the company's price-to-earnings ratio (P / E) divided by the company's earnings growth rate of the next 3-5 years (earnings per share compound growth rate * 100). For example, if a stock is currently trading at a price-to-earnings ratio of 20 times earnings and its expected compound growth rate of earnings per share over the next five years is 20%, then the stock's PEG is 1.
When PEG is equal to 1, it indicates that the valuation given to the stock by the market can fully reflect the growth of its future performance.
If the PEG is greater than 1, the stock may be overvalued, or the market may think that the company's performance growth will be higher than expected.
When the PEG is less than 1, either the market underestimates the value of the stock, or the market thinks that its performance growth may be worse than expected.
Usually, the PEG of value stocks will be less than 1, while the PEG of most growth stocks will be higher than 1, or even above 2. Investors are willing to give them a high valuation, indicating that the company is likely to maintain rapid growth in the future. Such stocks are prone to unimaginable P / E valuations.
Because of the characteristics of PEG, high-tech enterprises (TMT), biomedicine and network software development should give priority to PEG, while mature industries with low risk and low growth rate are not suitable to use PEG. In addition to high-growth industries, PEG indicators also have a strong indicative effect on the valuation of chemical, non-ferrous metals, machinery and equipment, light industrial manufacturing, pharmaceutical biology, financial services and other industries.
It needs to be emphasized that because the PEG indicator is a predictive indicator, when used alone, the value is not very obvious and must be combined with other indicators, the most important of which is the expected growth of the company's performance.
Market-to-sales ratio (Pstroke S)
The market-to-sales ratio (Price/Sales), which is the ratio of the price per share to the sales income per share, indicates the price that investors pay each year to obtain one yuan of sales income from the enterprise.
The valuation of the price-to-sales ratio is more suitable for the retail industry, because the sales income is relatively stable, the volatility is small, and it has the characteristics of small profit, on the one hand, the operating income is not affected by the company's depreciation, inventory and non-recurrent income and expenditure, and it is not as easy to fluctuate as profits. On the other hand, the income will not be negative, let alone meaningless, even if the net profit is negative.
The valuation of price-to-sales ratio is mainly used for the stock valuation of commercial retail industries such as electronic components and household appliances. In addition, it also has a strong reference significance for the real estate industry and metal products industry.
Price-to-cash ratio (PCF) or discounted cash flow (DCF)
The valuation of P / E and P / S is based on profit and loss, and the underlying support is the income statement in the three statements. However, the income statement is easy to be manipulated by the management, and its modification space and flexibility are relatively large, so it is often easy to confuse the "current performance" with the "profitability" of the enterprise. Even the excellent performance that lasts for several years does not represent the future profitability of the enterprise. The PEG method based on PE and profit growth can easily create the illusion of "dynamic underestimation of enterprises". In fact, it may have already overdrawn future profits.
Behind the price-to-book ratio is the balance sheet, which has much less room for modification and flexibility than the income statement, but this is both an advantage and a disadvantage-because PB is not sensitive to changes in corporate fundamentals and is often unresponsive to valuations of companies with light assets.
What is really difficult for management to modify and manipulate is the cash flow statement, because each item in this table must be a real capital inflow and outflow, which is more responsive to corporate fundamentals than the income statement. It also better reflects changes in corporate profitability. Furthermore, theoretically, the most reasonable measure of the intrinsic value of an enterprise is the discounted cash flow in the future, and its economic expression is the DCF model (discounted cash flow, Discounted cash flow).
Unfortunately, the DCF model is good-looking and difficult to use, and the calculation of discounting is more complicated, so some people directly use the stock price divided by free cash flow to value the enterprise, which is called PCF (Price/Cash Flow).
Because it truly reflects the capital dynamics of enterprises, the PCF method is reliable, sensitive, simple, intuitive and real. When comparing enterprises in the same industry, PCF method can often play a decisive role.
For example, just three months ago, someone used PE, PEG and PCF indicators to compare Maotai and Wuliangye. It seemed that Maotai was only about 10% more expensive than Wuliangye, but when compared with PCF, it was found that the valuation of Maotai was much higher than that of Wuliangye-so the share price of Wuliangye has risen much more than Maotai in the past few months since the bull market.
In fact, Buffett, the beacon of value investment, likes to use discounted cash flow to buy stocks that he thinks are undervalued, that is, what he calls a "understandable company" and try to "buy things worth 1 yuan for 40 cents". It's the equivalent of buying at a discount.
Of course, this method is used alone, but also has limitations, the key lies in how the cash flow is expected and discounted. Therefore, the index is only applicable to companies whose cash flow is relatively stable and predictable, and to stocks in information equipment, textiles and clothing, public utilities, transportation, consumer industries, pharmaceutical industries and other industries.
The above seven valuation methods can be applied to all stocks, but each has its own scope of application.
The next three indicators are stocks that can only be applied to specific industries.
7) P/EV indicators
Due to the particularity of the business of insurance companies, people have specially created the P/EV (market value implied value ratio, Price to Embedded Value) index, which is used to value insurance companies (especially life insurance companies).
Embedded Value is a unique concept in the insurance industry, which refers to the value calculated by each insurance company according to its own actuarial assumptions, because its calculation takes into account the various risks faced by the company and can be regarded as the value of the life insurance company when it is liquidated and transferred. EV does not include the value generated by future new business, which directly reflects the current operating results of life insurance companies, so EV has become the safety margin to measure the value of insurance stocks.
Because almost all insurance stocks imply national credit guarantee, for insurance stocks, a PEV below 1 basically means that the stock price is undervalued. If it is less than 0.8, it is a period of extreme undervaluation, while a PEV close to or more than 2 means that the stock is overvalued.
Take A-share Daniel stock Ping An Insurance as an example, its stock return has exceeded 20 times over the past 15 years, but Ping An Insurance's PEV has not changed much except for the mad cow phase in 2007.
8) RNAV indicators
RNAV (Revaluated Net Assets Value) is known as the "revaluation net worth method", which focuses on the valuation of listed companies in the real estate and commercial and hotel industries.
Suppose a real estate company has just developed a property that does not show profits, or has just made a profit, and its PE is extremely high, but the developable value of its land reserve is several times of the market value, can you say that it is worthless?
The reason why the RNAV method is proposed to evaluate the heavy asset real estate and hotel stocks is mainly because the book value of the PB is calculated by the book value of the company, and the net value of the real estate may vary greatly in different financial environments, which has a great impact on the valuation of the company, so it is necessary to use the revaluation net assets method.
Lower RNAV values reflect higher asset-liability ratios and larger equity. Therefore, the RNAV valuation method can be used to analyze the market-oriented value of each piece of assets of the company, and reinterpret the long-term investment value of the company from the perspective of asset value. If the stock price has a large discount relative to its RNAV, it often shows that the stock price may be significantly undervalued relative to the true value of the company.
User traffic and number of active users
Internet companies are the most special. Instead of looking at traditional indicators such as PE and PB, they look at the changes in the number of monthly and daily active users. Traditional industries look at the growth rate of net profit, Internet companies look at the growth rate of the number of users; traditional industries look at PE, PB, Internet companies look at the ratio of market capitalization to user traffic.
The reason is that Internet companies have no initial profits, PE may be unlimited; light assets, PB may also be infinitely large. We can only look at the source of future profits, that is, user traffic (UV), especially the changes in the number of active and paying users. BAT valuations are high because of their huge number of users.
However, there is always a bottleneck in the number of Internet users, and if Internet companies no longer have a geometric increase in the number of users and the company starts to make a profit, it needs to consider combining the PEG approach to assess its growth.
Edit / Edward