Understanding Finance from scratch

Chapter 27 How to Make Money Make Money, Deposit in the Bank or Invest——Learn some knowledge about investment and financial management every day (3)
The first is the state of the market the company is facing and its competitiveness: Can the company's turnover increase significantly within a few years?Are there any superior sales channels?The answers to these two questions are the basic conditions for judging whether a company is worth studying.

The growth prospect of turnover depends first on the situation of demand growth, and the company's management level must also be maintained at a high level.In addition, the analysis of the enterprise's sales ability is often neglected, and most analysts are only satisfied with relying on some rough indicators to analyze the enterprise's sales ability.Fisher believes that these ratios are too rough to be used as a basis for judging investment value. To understand the real marketing ability of a company, one must go to its competitors and customers to do arduous and detailed investigations.

The second is the company's R&D level: how efficient is the company's R&D activities?In order to further improve the overall sales level and discover new product growth points, how determined is the management to promote R&D activities?
Fisher believes that the most fundamental guarantee for a company's financial stability lies in its ability to continuously develop new product lines that can guarantee considerable profits, and this directly depends on the level of R&D activities.There are two most important angles to observe R&D activities: one is the economic benefits of R&D activities; the other is the attitude of the company's top management towards R&D activities, whether they can recognize the growth limit of the current market and take precautions.

The third is the company's cost and income status: what is the company's cost control level?What is the profit level, and have any effective measures been taken to maintain or improve the profit level?Is there a long-term earnings outlook?

Fisher is extremely optimistic about the long-term profitability of enterprises, and he has been pursuing companies whose net profit margins are consistently higher than the industry average.He clearly pointed out: "Investing in companies with low profit margins will definitely not be able to obtain the highest long-term profits." His reason is that companies with low profit margins are too weak in financial health and weak in resilience. Fall first.

The fourth and most important point is the company's management level: how is the company's personnel relationship and the relationship within the management team?Is the company's management hierarchy deep enough?In the foreseeable future, will this company continue to issue shares to raise funds, and will the interests of existing shareholders be greatly damaged by the expected growth?Is the integrity of management beyond doubt?

Fisher believes that good personnel relations (especially a good atmosphere within the management team) and sufficient depth of management are one of the basic guarantees to ensure the efficient development of an enterprise.Regarding the company's financing ability, he clearly pointed out: If the company will issue new shares for financing within a few years, but the existing earnings per share will only increase slightly, then we can only draw one conclusion, that is, the management's financial judgment ability is quite good. Poor, so the company is not worth investing in.

Among all the criteria for judging whether a company is worth investing in, Fisher puts the integrity of the company's management as the last and most important point.As early as 1959, he wrote emphatically: "No matter how highly regarded in all other matters, if the management class does not have a strong sense of responsibility to shareholders, investors should never seriously consider investing in such a company."

So when buying stocks, how do investors grasp the buying and selling points?

Investors are better off not predicting the so-called economic highs and lows as a basis for buying or selling.For the timing of buying, if you spend energy on predicting the economic trend, it will not be worth the candle.If investors have the patience to check the forecasts of economists published in Business Week every year, they will find that their probability of success is extremely low.Economists might do more for humanity if they spent the time they spend on economic forecasts thinking about how to increase productivity.

Investors should choose companies led by very capable management who occasionally encounter unexpected problems before they succeed.Investors should be aware that these issues are temporary in nature and will not last forever.If these issues trigger a slump in stock prices, but are expected to resolve within months rather than years, it might be quite safe to buy stocks at this point.

But that doesn't mean investors are completely ignoring the problems posed by the recession.However, apart from the stock price crash caused by extreme speculation in 1929 and the subsequent economic depression, investors should not be panicked by the sharp decline in stock prices.When it's determined that a company is worth investing in, it's time to invest in it, because fear or hope based on speculation shouldn't deter investors.

On the whole, a good company (company that meets the above stock selection criteria) + a good management team (team that meets the above stock selection criteria) + a crisis or mistake of the company is a good time to buy.

In addition to the stocks themselves, we also consider: the state of the economy, trends in interest rates, the general attitude of the government towards investment and private business, long-term trends in inflation, and last but perhaps most importantly, new inventions and technologies Impact on old industries.

So, when to sell?If the original purchase went wrong and the reality of a particular company is significantly less rosy than originally thought, it will depend in part on the ability of investors to be honest with themselves.In addition, when the growth potential of growth stocks is exhausted and the stocks are seriously out of line with the principles of holding, they should be sold.The last reason is that there are more promising growth stocks to choose from.

Fund: a safe and stable investment

my country's fund investment is developing very rapidly, and even some investors who have no concept of funds can't wait to join the fund transaction.

"I want to buy funds." An old man said softly to the counter lady at the bank, as if he was afraid that the other party would not understand, so he specially emphasized the last word: "Do you have funds?"

"Oh," the bank staff replied skillfully, "Then what kind of fund do you want to buy?"

"This..." The old man was obviously a little confused, "I don't know, what are there?"

Just as the lady at the counter was about to hand over a stack of fund product introductions, the old man said something surprising: "Why don't you show me a fund?"

How should fund investment operate?What is the specific strategy?

The term fund has only appeared in the Chinese market for more than 8 years. So far, the penetration rate is still not high. There are about 1000 million Christians in China, but there are still a small number of people who really know and understand funds.The fund is actually a way of managing money and a contract.By purchasing fund products, investors and fund companies establish a relationship of entrusted financial management, so as to achieve the purpose of allowing experts to help individuals invest.

Simply put, a fund means that you invest part of your money in a fund company, and the fund company's traders then use your money to invest, usually in the form of stocks.It can also be summed up as you spend money to hire professionals to trade stocks for you.

If you earn, you will be given a corresponding dividend based on the number of shares you bought, the difference between the net value of the unit on that day and the net value on the redemption date.If you lose, you also have to share the loss based on the difference between the number of shares you purchased and the net worth.

A certain handling fee will be charged when buying, generally 0.012 yuan per share, and 0.005 yuan when redeeming.For example, if the net value of the unit on the day you buy is 1 yuan, and you buy 10000 shares (a total of 1 yuan), you need to pay a total of 170 yuan in handling fees.If you use online banking to purchase, there will be a corresponding discount, and the handling fee is about 110 yuan. Of course, the regulations of each bank are different on this point.

Fund operations are generally divided into three stages: the subscription period, the operation period (closed period), and the subscription period.At the beginning, there was a subscription period, usually about half a month, during which you could only buy but not redeem (sell), and the purchase price was generally 1 yuan.Then it enters the operation period (closed period). During this period, the fund company takes your money to build a position. It can also be said to be a preparation period, which generally does not exceed 3 months. After opening, most funds have increased, and some It will fall back to 0.9 yuan or lower. At this time, don't think that you have lost money, because your investment has just begun.Then enter the subscription period, at this time you can buy and sell freely.

In the eyes of domestic investors, star funds are the focus of investment, but this idea is not correct, because even if someone can predict the absolute return of the market in the future, it is impossible to predict the return of individual funds relative to the market, at most The return on index funds.For example, a growth-oriented mid-cap fund in the U.S. market has attracted a large number of subscription shares due to its outstanding performance, but its performance has continued to deteriorate with the expansion of fund shares. From 1991 to 1995, the fund's performance ranked first in the industry for 5 years within 4 years, and the fund size also increased from 1200 million US dollars to 20 billion US dollars.In the three consecutive years since 1996, the fund's scale has reached a maximum of 3 billion US dollars, but its performance ranking has fallen to the bottom of the industry.

Generally speaking, there are only two situations where the prediction is likely to be accurate: one is that the performance of high-cost funds is usually worse than the corresponding market index; the other is that star funds whose historical performance is significantly better than the market index returns will return to the market average , even lower than the latter.Looking at the U.S. market, from the 20s to the 70s and from 80 to 1987, 1997% and 25% of the funds whose performance was in the top 97% of the market returned to the mean and below the mean, respectively.

So what kind of investment strategy should investors adopt when investing in funds?

First, don't hold too many stock funds.We know that holding more than five stocks in stock investment will bring huge risks. A survey by an internationally renowned fund rating agency also shows that randomly selecting 4 to 30 stock funds to build a portfolio cannot achieve the effect of reducing risks. Therefore, there is no need to hold more than 4 stock funds, because the effect of excessive diversification is similar to an index fund, but due to the high cost of stock funds, the final return is likely to be lower than the index.In addition, it may not be a wise choice to disperse stock funds with different styles.John Bogle believes that assuming a fund portfolio composed of large-cap mixed funds and small-cap growth funds is established, this combination will have more significant volatility than the market, and this combination that is more risky than the market index is meaningless.The risk of holding a large-cap hybrid fund alone is lower than any fund portfolio.

Second, hold excellent funds for a long time.The strategy is to buy a few good funds and hold them indefinitely.The development history of the international stock market shows that in the long run, the stock price as a whole always shows an upward trend.Therefore, a long-term investment strategy based on a reasonable portfolio investment is a reliable and easy way to obtain average stock market returns.

Third, regular fixed investment eliminates fluctuations.The specific operation of regular fixed investment is: select a certain fund with long-term investment value and large price fluctuations, within a certain period of time, no matter whether the stock price is rising or falling, insist on regularly buying this kind of fund with the same funds.If he puts out 3000 yuan for fixed-term fund investment, calculated according to the average annual rate of return of 10% for fixed investment in mature markets in the world, after 10 years, his assets will increase in value to 61.4 yuan.

Fourth, do not miss the opportunity to buy and sell in batches.The batch trading strategy refers to the average investment of funds at different prices, that is, the same amount of funds are invested in the market at regular intervals or when fixed conditions are met (such as the stock market rising or falling by 50 points).When the timing of the market cannot be judged, the funds can be purchased in batches, and when the net value of the funds rises to a certain height, they will be sold in batches.An investor's good will is to be able to buy at the lowest price and sell at the highest price.But there are not many investors who can really get their wish in the market.

Fifth, fixed target rate of return.The fixed target rate of return strategy is one of the fund's investment strategies.The simple operation of this investment strategy is that investors set a fixed target rate of return (for example, 10%) as the profit target. As long as the increase of the purchased fund exceeds 10%, they will immediately sell it without considering other factors. Changes in relevant circumstances.

A Close Cousin of Savings: Investing in Bonds
At the beginning of 2009, Mr. Lu bought a money market fund. "The annual return was even higher than 3% at the best time. In the middle of 2009, I changed all the stocks into cash. I didn't even think about buying bonds at the beginning. , but I don’t know if I was scared by the stock market, or I got used to buying money market funds. I no longer like the high-risk investment before, and I just want to switch to a new product that can replace money market funds.”

After listening to the introduction of bond investment by a financial consultant, Mr. Lu felt that the income of this investment product is very real. At least he can get the coupon rate after holding it to maturity, so that he will not lose money.

He bought all the funds into 04 government bonds (7), and that was in September 2009.By 9, Mr. Lu hadn't sold it yet. Although the current price has dropped from the highest price, he has realized a 2010% return including the interest on national debt.

What are the characteristics of bond investment?What issues should be paid attention to when investing in bonds?
For ordinary people who are accustomed to prudent investments, treasury bonds have always been popular.Some investors are confused about the difference between bond investment and savings, and don't know which one to choose.In fact, it is enough to compare savings deposits and government bonds with the same maturity, which one has a higher yield at maturity.It should be noted that the interest income of savings deposits needs to deduct interest tax, while the interest of national debt is tax-free.

my country's treasury bond investment has two channels: counter trading and exchange trading.Generally speaking, the income from over-the-counter transactions at banks is relatively small. At present, government bonds and corporate bonds that are available for ordinary people to invest are listed and traded on the Shanghai Stock Exchange.Purely from the perspective of yield, most of the remaining maturities of corporate bonds on the Shanghai stock market are less than 5 years, and the yield to maturity is about 1% higher than that of government bonds of the same period; while the remaining maturities of government bonds are mostly 5 to 10 years, The yield to maturity is slightly higher than the compounded annual yield of savings deposit interest after tax.

If investors want to invest in Shanghai stock market government bonds or corporate bonds, the first step is to open a stock account (because the exchange bond settlement and stock settlement use the same account); the second step is to select a suitable securities trading business department to open a stock account. Capital account; the third step is to buy the right bonds at the right time.If you plan to hold it until maturity, you don't have to bother with it until maturity.It should be noted that there is a handling fee when buying bonds.

Bond prices also have market changes, which are mainly related to the interest rate market. When the interest rate market rises, the bond price will fall; if the interest rate market falls, the bond price will rise.The extent to which a bond's price changes is related to the remaining maturity of the bond.Generally speaking, the range of interest rate changes is the same, and the longer the remaining maturity, the greater the price change of the bond type. Therefore, the price fluctuation of the long-term bond type is greater.Many investors invest in bonds hoping to earn the difference, rather than holding them to maturity.This investment method has higher requirements on investors' ability to track market conditions.Bonds are not stocks, and require a lot of calculations. Of course, judgment and analysis of interest rate trends are also required.

In my country's primary bond market, individuals can subscribe for bonds through the following channels: certificate treasury bonds and book-entry treasury bonds issued in the bank counter bond market, which can be subscribed at the bank counter during the issuance period; book-entry treasury bonds issued in the exchange bond market Book-style treasury bonds can be entrusted to qualified securities companies to subscribe directly through the exchange trading system, or directly subscribed from designated treasury bond underwriters; corporate bonds can be subscribed at the business outlets announced in the issuance announcement; convertible bonds, such as online Issued at a fixed price, online subscription can be made through the securities trading system of the stock exchange.

In the bond secondary market, individuals can transfer and trade bonds, mainly through two channels: one is to trade book-entry treasury bonds through the counters of commercial banks, and the other is to buy and sell book-entry treasury bonds, listed corporate bonds and bonds through exchanges. convertible bonds.

As an investment method, bond investment also has risks, and the main ones worthy of our attention are interest rate risk, credit risk, and liquidity risk.

Bond interest rate risk refers to the risk of changes in bond prices and yields due to changes in market interest rates.When market interest rates rise, bond prices fall, causing bondholders to lose capital.Generally speaking, the longer the maturity period of the bond, the greater the interest rate risk.Credit risk refers to the risk that the company that issues the bond cannot pay the bond interest or repay the principal on time, which will bring losses to bond investors.Credit risk is mainly manifested in the investment of corporate bonds. Due to various reasons, the company has the risk of not being able to fully fulfill its responsibilities.Credit risk can be measured by the credit rating of the bond issuer. The better the credit rating of the debtor, the lower the credit risk of the bond.Liquidity risk means that bonds with poor liquidity make investors unable to sell bonds at a reasonable price in the short term, thereby reducing losses or losing new investment opportunities.Liquidity risk can be obtained by observing the trading volume of bonds. If the daily trading volume of bonds is large, the liquidity risk is small; if the trading volume is small, it is inconvenient to buy and sell, and the liquidity risk is relatively high.

Grasp the opportunities of futures investment

(End of this chapter)