Snowball Special Issue No. 015: Looking for Ten-fold Stocks

Chapter 1 Why should I insist on investing in growth stocks

Chapter 1 Why should I insist on investing in growth stocks (1)
Dan Bin, Chairman of Orient Harbor, published on August 2012, 8

Snowball Investor Interview Series

Simply put, Mr. Dan Bin may be regarded as one of the most experienced investors in the domestic private equity circle.He graduated from Henan University with a major in Sports Theory in his early years, and later obtained a Master of Laws from Renmin University of China and an EMBA from China Europe Business School.In college, Mr. Dan Bin was deeply influenced by the liberal atmosphere at that time, hoping to contribute to the development of the country; after graduating from college, he also experienced some twists and turns. In 1990, Dan Bin's first job was as a fitter in Kaifeng Chemical Fertilizer Factory. After that, he moved to Guangdong and Beijing, and went to Shenzhen in 1992 to start formally contacting stocks. Later, he worked in consulting companies, sales departments, and Junan Securities Research. Institute, Dapeng Securities Asset Management Company. In 2004, Mr. Dan Bin formally established Oriental Harbor Investment Management Company, and began to invest in A, B, Hong Kong stocks and overseas Chinese stocks; in 2007, he issued the first sunshine private equity product "Oriental Harbor Marathon".

In the early years, Mr. Dan Bin believed in the wave theory and was familiar with technical analysis; later he converted to Buffett's value investment theory and was known as the main force in China to practice Buffett's investment thinking. The sudden stock market adjustment in 2008 caused the net value of Orient Harbor’s private equity products to drop by about 60%, which caused Mr. Dan Bin to be questioned for a time.He described it himself: This is the biggest lesson he has learned since he entered the industry.

After learning from the pain, Mr. Dan Bin quickly made adjustments, gradually clearing out heavy holdings such as real estate, banks, and chemicals, and refocusing on large consumer stocks that can go through cycles.This strategy allowed Mr. Dan Bin's private equity funds to continuously outperform the market after 2009.According to data from Haomai.com, in the past six months, the Orient Harbor Marathon Fund has achieved a return rate of 6%, far exceeding the return of the CSI 20.03 and -300% in the same period.

The main points:

(1) The Chinese market is more suitable for investing in growth stocks.Investing in growth stocks goes with the flow, while value stocks sometimes go against the flow.

(2) Buffett is Fisher with seven points and Graham with three points.

(3) Investment is a reward and punishment for the quality of human nature.

(4) The key to the reform is to issue new shares in a more market-oriented manner and to let enterprises close down, go bankrupt, and delist in a more market-oriented manner.

(5) The state still cares about the common people, which may harm the market instead.

(6) Only blue chips create wealth, and most companies destroy wealth.

(7) Only 53% of the investment can be accurately valued, and the other 47% cannot be accurately valued.

(8) If he did not invest in Guangzhou Pharmaceuticals at that time, he would regret it for the rest of his life.

(9) If Wanglaoji really does well, it may be a better company than Moutai.

(10) If you dare not invest in Moutai with [-] or [-] times PE, then don’t invest.

(11) I most want to buy the stocks of Alibaba Group and Shunfeng Express.

Xueqiu: After the setback in 2008, why have you performed so well in recent years?
Dan Bin: Let's choose a good company.When Oriental Harbor was established in 2004, it was also in a big bear market. At that time, our performance was constantly hitting new highs.Our stock selection style is bottom-up, and we choose stocks that cross the bull-bear cycle, so it is mainly the bottom-up style that wins.In fact, our 2004-2007 period was also bottom-up, including 2008, but the subject matter selected in 2008 may have serious problems. In 2008, our losses were mainly in banks, real estate, insurance and Wanhua Chemical (SH600309) and other enterprises.This kind of enterprise itself is very cyclical. When the economic situation is not good and Davis double kills, it will have a great impact.In fact, we replaced Changyu and Baiyao with such stocks in 2007. Although it was a bonus at the time, when the economic situation was not good, Davis double-killed it very fiercely. After 2009, we slowly withdrew from the cyclical industries, because we thought it was problematic for these industries to cross cycles.Therefore, including this year, real estate stocks have performed better, and highly cyclical companies such as banks, insurance and chemicals, as well as heavy asset classes, have not performed well.Of course, industries that are asset-light, consumption-related, weak-cyclical, and historically proven to be able to go through cycles have indeed performed well.In fact, we have returned to the state of our investment in 2003-2005, but after the painful price in 2008, we have a clearer and deeper understanding of what kind of companies we should invest in in order to go through the cycle.

Snowball: Why did you have that choice in 2008?You said that the current stock selection style has returned to the style when the company was first established. Is there any difference in this return?

Dan Bin: It’s all about gaining wisdom through a pitfall.Because in 2008, we went all out to experience, maybe not like some people are short positions, we have a long-term style, this is to follow the logic of long-term investment.But what kind of things to choose to go through the changes of the bull-bear cycle and invest in the long-term, it can be said that it is difficult to understand without profound lessons.We have undergone deep reflection, and the correction is relatively timely.For example, in 2009, we changed the real estate to Shanghai Jahwa (SH600315). At that time, our cost was almost 12 yuan, (with ex-rights) now it is more than 40 yuan.If we hadn’t changed at that time, and still held stocks such as real estate, banking, and insurance, and held them until now, our net worth would have risen from 1.5 to [-] cents to around [-] yuan, and it might still be [-] to [-] cents now, so this kind of change It is necessary, and we may even be slightly late.For example, if the changes to some insurance companies and banks can be made earlier, it will be even better.

Xueqiu: How long can the current high valuations of Shanghai Jahwa and other consumer companies last?

Dan Bin: This mainly depends on the operating conditions of the enterprise.For example, Kweichow Moutai (SH600519) had a very high valuation in the early days, but now it has risen to a low valuation. It may rise to more than 200 yuan, and its PE is less than 20 times. However, the valuation in 2003 and 2004 was actually lower higher.Therefore, the level of corporate valuation should mainly depend on long-term growth.Our style is to mainly buy growth stocks and invest with growth stocks as the cornerstone.If you are talking about buying value, such as the undervalued banks or Daqin Railway that many people are now talking about, it may be even lower, and the low standard is difficult to determine.Whether the so-called Graham's cigarette butt investment method can really make money at each stage is the same as our answer to whether our style is suitable at each stage.

We can see from Mr. Buffett's growth experience that if he only invests in pure value butts, he will definitely not be able to achieve today's status. He is still based on value and relatively speaking. Can be vague certainty.For example, investing in See’s Candy, he also thought it was too high at the time, and he almost didn’t invest. It was Mr. Munger who said, “You just invest”, so he turned from See’s Candy into a growth investment.He himself evaluated himself as "Graham with 7 points and Fisher with 3 points".But my judgment should be: Fisher with 7 points and Graham with 3 points.Of course, he may have a large amount of funds now, and he has returned to Graham's method, such as buying railway stocks.Many Chinese people also look at Buffett when they buy railway stocks.He is in different historical stages. For example, when your capital reaches a certain level, you are looking for a relatively certain thing.Because I can hold it for a long time, and I can hold it for 10 years, and I can get back my capital by dividends.But when you don't have enough capital, or you have enough energy to invest in growth stocks, growth stocks may be better.Because growth stocks go with the flow, value stocks sometimes go against the flow.Which method do you think is more suitable for this stage of growth?This may be something that needs to be discussed.Of course, there are possibilities and opportunities to make money in a variety of ways.Some people can definitely make money by doing pure value and cigarette butts; some people can also make money by doing growth.This is not a matter of principle, it is determined by people's personality, preferences and focus.

Xueqiu: In China, which type of investment is the stock market environment more suitable for?
Dan Bin: I think growth investment may be more suitable.This domestic hype style has gone through 20 years, and it is very difficult for you to change its trading culture.For example, if a company in Hong Kong performs well, if it is confirmed that this is the case, its stock price will start to perform.The culture in the mainland is that if this thing can rise, the stock price will soar, and then rise to the end, and this matter will start to fall.This is still different from the mature foreign methods, so I personally prefer that the growth-type value investment method in China is more suitable than the pure cigarette butt-style value investment.

Xueqiu: Are bargain-hunting banks, Daqin Railway (SH601006) and so on now regarded as cigarette butts?
Answer: If you think it is a cigarette butt, it is a cigarette butt; if you think it is not a cigarette butt, it may be a trap.Different people have different opinions. Some people can buy the bottom if they think it is valuable, but others may think it is worthless.Value may be a metaphysical thing, not definite.It is only valuable if you think it is valuable and others think it is not.

Xueqiu: So do you think the current market has reacted to banks?

Dan Bin: I don't even think the banks are undervalued.

Xueqiu: Why are you so optimistic about Baiyun Mountain (SH600332)?
Answer: I personally think that Guangzhou Pharmaceutical can only be an expectation. After all, it has taken back Wanglaoji.I have followed the brand of Wanglaoji for many years, and it may be comparable to Coca-Cola. In 2014, Wanglaoji has surpassed Coca-Cola, and now Wanglaoji is under the banner of Guangyao.I hope that Guangyao can use the strength of this brand to compete with Jiaduobao.Jia Duobao is very strong, learn from the strong.If it doesn't work, we have to fight a few battles, and after a few battles, we will train a team.For Guangzhou Pharmaceutical, as long as the brand can be continued.Of course, the long-term potential and explosive point of Guangzhou Pharmaceuticals still exist.

Xueqiu: Are you sure about your expectations for Guangzhou Pharmaceuticals?
Dan Bin: The competition of pharmaceuticals is more cruel than the competition of consumer goods.For example, there are many manufacturers of the same drug, and there are only seven or eight competitors of consumer products.Now there are only a handful of companies that make herbal tea, but for pharmaceuticals, there are many companies competing for the same product, and this competition will be even more brutal.For Wanglaoji, it can be observed that I think the probability of Guangzhou Pharmaceuticals making it is greater than the probability of failure.

Xueqiu: What do you think of the limitations of the system?

Dan Bin: The limitations of the system have disadvantages, but this may be because the mechanism is not flexible enough.From another point of view, state-owned enterprises do not necessarily fail, including Baiyao, Moutai, and the later restructured Changyu and Shanghai Jahwa, at least there must be a 4-8 possibility.Especially a brand like Wanglaoji has been deeply rooted in the hearts of the people. If the team can't do it anymore, the team itself will also be under pressure.If the state-owned enterprise has no motivation, the team may not be able to do it; but if the team is under great pressure and cannot do it well, I think the future of Guangzhou Pharmaceutical's leadership is definitely gone.I also once commented that Guangzhou Pharmaceutical took 2 kings, 1 [-]s, and [-] string of bombs. If they lose to others, they will simply jump into the Pearl River and forget it.I think their own pressure must be very great.

Snowball: Are you saying that stress itself is a kind of motivation?
Dan Bin: Of course.You said how big is the gap between state-owned enterprises and private enterprises, and between people?Is it one sky and one underground?For example, many people are assigned to state-owned enterprises. No matter what, they need famous universities and certain strengths to enter a good state-owned enterprise, right?It's just that he didn't have an opportunity and a platform for him to rush and fight. Now that he finally has such an opportunity, he has to fight!If you are from Guangzhou Pharmaceuticals, many people will say "Oh, your company is in decline", and you will definitely feel ashamed.I think that the people of Guangyao must be holding back their energy now. More than 90% of the people are not optimistic about Guangzhou Pharmaceuticals, saying "this group of people can't do it", and treat the Guangzhou Pharmaceuticals team with contempt.People have a skin, so they must fight for it, right?If it really doesn't work, there must be problems with the Guangzhou State-owned Assets Supervision and Administration Commission, and there must be a replacement.Why?Because such a good thing can't be made, they can replace it with a new one.I think we can wait and see.

Xueqiu: How do you see the future development prospects of China's economy?

Dan Bin: I personally think that adjusting the structure may still be the most critical issue.China's economy may still be driven by real estate and investment, but the strength and extent are already decreasing.If the economy does not transform in the future, it will be very difficult to rely solely on investment and exports.The current performance of the stock market has actually explained the problem.The relatively strong performances are all industries that are in line with the general direction of consumption and structural adjustment. The performance of industries closely related to the long-term macro outlook is poor, indicating that the market is already adjusting.

You can see that this round of economic crisis happened in the United States, but the US stock market has now reached 13000 points, and the pits where the crisis occurred have been filled. If it reaches a new high, it may be the beginning of a new cycle.As for China, the economy is still growing by about 8%, but the stock market has gone from the original 6000 points to the current 2000 points, and it is not certain whether the current 2000 points can be maintained.This is mainly due to the composition of our stock market, which is similar to the economic composition of our country, which is why we have this result.Why is Moutai's market value constantly increasing, but the general trend is still falling so much?If companies like Tencent, Alibaba, Qihoo 360 (QIHU), and Sina (SINA) come back.Another example is New Oriental (EDU), how has it been beaten in the United States?If also come back.Well, for this large number of dynamic companies, companies that are closely related to the Chinese economy and are growing at a high speed, if these companies are listed in China, the situation will be completely different.

It is a pity that so many good companies cannot come back, or they cannot be listed on A shares.Can there be a mechanism to make it more market-oriented and allow the market to make choices to see which companies should achieve great development in our market and which ones should not allow the market to have a choice.Even if some companies can go public, if they can't do well, the market can eliminate them. This is a positive cycle.There are big problems with our current listing rules and the culture of the entire market operation. It is based on a planned economy and traditional methods of market control, which actually hinder the construction and development of the market.For example, the China Securities Regulatory Commission says that it does not approve of stopping the issuance of new shares, and many investors call for a stop. In fact, I also think that new shares should be issued, but the key is to issue new shares in a more market-oriented manner.In addition, it is more market-oriented to let companies close down, go bankrupt, and delist, so that it is positively related to the market.For example, if a company really makes false accounts, it will be fined immediately, with a fine of more than one billion yuan, and all the things since its listing will be taken back.If this kind of strict post-listing supervision is used, the purpose of letting good companies go public and punishing bad companies will be achieved, and the structure of the stock market will also undergo a huge change.If Alibaba goes public as a whole, and its market value rises from a small one to 5000 billion yuan, it will make a great contribution to the index.It is a pity that this most dynamic company is not listed and is floating outside.

Xueqiu: What do you think of the recent actions of Guo Shuqing, former chairman of the China Securities Regulatory Commission?

Dan Bin: I agree, but he may also face huge internal and external pressure.I also hope that he can reform more thoroughly and support him vigorously.He has also seen these things, but in fact the country still cares about the common people, and maybe this will harm the market instead.I think Chairman Guo has a very deep understanding of the market, but because China is a very complicated society with many constraints, it does not mean that you can do whatever you want, so you can only support him.

If I didn't invest in Guangzhou Pharmaceuticals at that time, I would regret it for the rest of my life.

Xueqiu: When you first invested in Moutai and now in Guangzhou Pharmaceuticals, there was a lot of controversy at the beginning.How did you manage not to be moved by external pressure?
(End of this chapter)

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