Three Principles for stock selection of a returnee

Note: The Blue font is a note I added for my convenience. Original article address:Stock selection of a returnee Three Principles--- Post Author:In 12 million, I was a returnee. In the past year, my personal stock account increased the investment income by 400% yuan, and my return on investment was. I used to work as a M & A manager for a multinational company. I have seen many Chinese companies and have also represented foreign companies who "seize the luxury" of several domestic state-owned enterprises, because they are often condemned by their conscience, resigned last month. At present, I am a moderator in the world manager community in my spare time. I have been in this "position" for a long time, but I have never had time to serve you. This may be my biggest "official ", I have no employees. I only have two temporary private secretaries. One is playing with me, eating and driving, and the other is helping me answer the phone and read emails.

Inspired by another big guy in the community, I am willing to donate 100,000 yuan to the Chinese investor alliance as one of the initiators. You can say that I am also famous, and I am optimistic about this organization. I believe she can grow bigger. Since the establishment of the Chinese stock market, there have been endless incidents of infringement on investors' rights and interests. I do not know real estate, but I have invested in the stock market for 14 years. I will post some experiences here. Welcome.

My stock selectionThree Principles

I. Mother-in-law principle

Before every investment, I would ask myself, "If this is money from my mother-in-law, will I still invest ?" I think few people are willing to lose the money of the mother-in-law. I remember that when my mother-in-law saw my Internet stock (csco, Intl) making money, she gave me all her savings to buy stocks. Seeing that NASDAQ had a new high, I struggled for a long time and finally decided to buy her now Altria, Mo ). At that time, Philip Morris suffered a lawsuit and his shares fell to about $20. However, from its balancesheet (balance sheet) analysis, its Kraft food department is worth ~ $23/share. So I assume that even if the tobacco Department goes bankrupt, the company is worth $23 per share. Today
$20 K investment has grown by more than six times (including dividend and Kraft shares ). This lucky move has changed my life's investment strategy. The principle of mother-in-law has become my highest principle. Its core is that it cannot lose money.

Ii. Principle of ultimate supremacy

Any learnedDCFPeople in theory know that the final value is usually higher than the present value of near term cashflows. That is to say, a company's long-term cash flow capability is more important. This is also one of the main reasons warrenbuffet does not buy tech stocks (another reason he says he doesn't understand it. Interestingly, most Chinese in the United States think they understand tech stocks :-). If I cannot determine its terminal
Growth rate> 4-5%, I will remove it from my database (approximately 300 stocks, mainly for companies in the United States, Europe, and South Korea ). The vast majority of science and technology stocks do not meet this requirement. Therefore, my portfolio (portfolio) is more boring than boring to many friends (for many of my friends). Speaking of technology stocks, I added an episode. I am in Netscape
One of the "lucky ones" who purchased their shares on the first day of the IPO. How many people still remember Netscape?

Iii. Coping rather than forecasting principles.

This is actually not a principle or strategy, but a tactic. However, anyone, especially new users, like to make predictions. To guard myself, I will escalate it into a strategy. It is no less important than the first two. In fact, the discerning person has long seen that Graham and Buffett have discussed these principles. I just spoke it again in my own language. In the subsequent articles, I will introduce specific tactics.

In the above article, I introduced my stock selectionThree PrinciplesThat is, the principle of mother-in-law, the principle of top-end value, and the principle of coping rather than forecasting. Next we will talk about my specific operation method, the so-called tactics. Chairman Mao taught us that "Strategically we should despise the enemy, but tactically we should pay attention to the enemy ". In line with this policy, my core idea is that strategy should be simple and unchanged, but tactics should be flexible and diverse. Strategy determines what shares to buy, tactics decide when to buy and how much to buy. Tactics are more complex than strategy. My goal is 15-20% annual return. If you want
20 + % return, You may be disappointed.

1. select Valuation Model

The modern business uation theory puts forward many valuation models, such as Discounted Cash Flow (DCF), Enterprise value, liquidation value, and so on. I personally prefer
DCFModel. Accurately estimating the internal value of a company is actually very difficult (if not impossible) because of many uncertainties. Therefore, I generally calculate a range, that is, two values of between: one value of using Thomson's consensus estimate) and a 'miserable value' (using incluced estimate based on my own observations ),
In this way, a Range is obtained. Then calculate the share price's discount with a sad value-if the share price is higher than the internal value, discount is negative (such shares are naturally not worth investing ). The order of stocks can be arranged according to the discount level. My personal experience shows that computation, even rough, is better than not computation. For example, when I bought oil stocks three years ago, it was difficult to determine whether to buy XOM, cop, or ECA. (P/E is a reference, but not comprehensive ). After calculation, I bought the cop and ECA. In addition, if you want to win in the stock market for a long time, you need edge (advantage)
. Complex computing and repeated computing, especially worst case, can increase your own edge. If you have been on the stock market for a while, you will find that most people never calculate, including some professional Mangers (otherwise there will be no window dressing at the end of the quarter ). Computation can also help avoid emotional.

In addition, many people think thatDCFThe model is only applicable to value stocks. In fact, it also applies to growth stocks. Occasionally, a growth stock will be converted into a value stock by misprice (wrong price). But more often, it is used to prove that a (too high) stock price can not be
Sustained (persistent)-You use the most optimistic analyst's estimate (Evaluation), discount (discount) or negative.

2. Create your own database

It took me nearly ten years to build and improve my own database. Currently, the database has about 300 million stocks, the U.S. shares account for 2/3, the European shares account for 1/4, and the rest are Asia Pacific countries (South Korea and so on ). At present, there are no Chinese stocks and no Latin American stocks. Latin American stocks often grow by 100% this year and fall by 50% next year-not my type (like a female (male) friend. If it wasn't your type, it would be unpleasant even if they were together, investment is supposed to be a pleasant thing ).

With the database, the next step is to create a watchlist. Based on the above valuation model, if the discount (discount) of a stock in the database is greater than 30%, I will put it into the Watchlist. there are usually 5-10 shares in the Watchlist. If you catch up with the recent subprime crisis, the shares in the Watchlist will increase. Pay most
Attention.

3. What kind of stock is going into the database?

So what kind of stock can be added to the database at the first place? In short, someone with an edge. if edge is used, it will have long-term competitiveness. If edge is used for long-term competitiveness, it will have terminal value (second principle ). this edge can be a scale (such as PG, WMT, jnj), a unique, and a monopoly (monopoly) product (such as Mo, Ko
, Ba, MSFT), or cutting-edge and proven (verified) technology (such as eBay, amgn ). In short, there must be an edge (this will leave Goog out in my opinion
This will make Google out of my stock selection ). A simple way to judge is: If you (or the best person you know) 1 billion, can you pose a material (decisive) threat to it. For example, here is one billion. Can you shake Ko, WMT, or PFE? The answer should be no. But what about Google? I don't know. This step sounds difficult. In fact, it is relatively easy after you have some experience.

With the primary election goal, I will use the following screening clause ):

1. The company must have more than 10 years of operation history and more than 5 years of transaction history. This is what I learned from the lessons of blood.

2. Roe> 15%. The average RoE for the past five years (preferably 10 years) must be greater than 15%. This one can remove 90% of the shares (in the case of a large-scale scandal or lawsuit (scandal or lawsuit), it can be relaxed to 12%, in order to use fire price to generate high quality companies, but it usually requires 15% ).

3. Profit margin (profit margin)> 8% (this will leave wall Mart, PetSmart etc out). Many people think that as long as the camp is good, profit margin does not matter. In fact, when bad time inevitably (inevitably) comes, good profit margin
Is a favorable line of defense. Even if the revenue (revenue) declines, the company can still make profits, and the company can spend the difficult time by dismissing people (sorry) or reducing dividend (interest. On the contrary, companies with low profit margin will turn into negative profits as soon as there is a breeze. Moreover, such companies often need predictional management skills, but as Buffet says, the best
Company is the one that even a fool can run, because someday someone will.

4. D/E ratio <40%. (in addition to the ratio of equity net assets, debt refers to the debt that requires interest. It is usually the debt owed to the bank .) When the situation is good, this D/E ratio may not be the most important thing, but when the situation is poor (such as the present), this is a thing that requires human life. Don't forget that bankers always lend you umbrellas on sunny days, and take them back on rainy days (sounds familiar ?) .

5. This step is a little more complex. When calculating the inherent value, I calculate both a potential score and a safety score. Safety score depends on

D/E ratio, profit margin, dividend payout, and earnings acceleration (acceleration), etc. The score must be greater than 50 (mean: 50 ).

After these five steps of rigorous screening, there are actually no more than 300 stocks left, but I will also add some major competitor (for comparison), so a total of more than 300. There are fluctuations every year, but not big. The reason for repeated screening is to satisfy the principle of "mother-in-law. In real estate, there are location, location, location; in the stock market, it is safety, safety, safety.

4. From watchlist to portfolio

After performing the inverse complex calculation and filtering, the remaining tasks are relatively simple. One sentence: "waiting for Rabbit ". What are you waiting? Wait for bad news, wait for lawsuit, wait for emergencies, wait for scandal, wait for overwhelming (unstoppable) Negative cover story .... under normal circumstances, there are not many stocks with 30 + % discount, but the opportunity will still be knock your door when the negative cover story is full or in an emergency, for example 99
Mo at the time of the year, GS after 911 ....

When discount> 40%, I will consider purchasing them gradually. At this time (or earlier), you have to carefully read the 10-q in the last quarter and the 10-K in the past three years (if you have read it before, read it again !) .

In addition, I will make final screening based on the following situations:

1. In the same case or in the same group, I will select the D/E ratio with the lowest, and the market cap with the highest. [Medical stocks have a large variety of medicines, and cold medicines won't be highly profitable if there are more medicines]

2. basically, I am looking for temporarily knocked-downs (by external force) (temporarily knocked down by external forces), not turnarounds (the fundamental reversal goes bad ). neither of the ox, such as Buffett, can turnaround Berkshire Hathaway mill, but has to close its textile business in 85 years. Early 1990s
IBM is rare exception. Of course turnarounds generally does not pass Roe> 15% and profit margin> 8% to this level.

3. When a Scandal Storm exists, the center of the storm is not selected (because it may be faulty), but the victims (victim) That is scanned by the storm outside the storm (especially later stage ).
Later stages are affected). class struggles are always extended-we are most familiar with this aspect. Grab the AB group, hold it, and there will be AB groups everywhere... At the time of the Enron scandal (Enron Scandal) incident, Enron and WorldCom were undoubtedly the center of the storm, but they expanded later-FNM and AIG was good examples (I bought AIG, but Miss FNM ). As for the subsequent Sarbanes-Oxley
The bill has been overcorrected (especially section 404), causing a heavy burden on small companies, so that Congress has to consider the amendment. [How do I buy some Yi Li during the melamine period?]

5. Formulate discipline and strictly enforce it

The right stock is also the right stock, but it may lose money. Why? No self-discipline (self-discipline, self-discipline). After years of positive and negative lessons, I set myself the following discipline:

1. Any stock, regardless of profit or loss, must be held for at least two years. Because it has to be held for more than two years, you will be very careful when buying. Because it is held for at least two years, it will not be sold too early.

2. I 'd rather miss three thousand than catch up with one. Each stock must go through the database, Watchlist, and portfolio trilogy. No exceptions.

I would like to reiterate that this article is just my personal investment experience, not an investment suggestion. If you lose money, I am not responsible. If you make money, I am very happy, but don't have to thank me (You are wise ).