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

Chapter 10 How to Seize the Opportunity to Invest in Growth Stocks

Wang Li, electronic researcher of Galaxy Securities, published on July 2013, 7

I published "On Growth Investing and Value Investing" before. My original intention was to provide you with some ideas on finding real growth stocks and controlling the keypoint of growth investment, but many people misunderstood that I was interpreting high-priced stocks and the GEM Foam.It's a completely different story.In fact, real value investing includes the consideration of growth and undervalued factors. Buying the right stocks is one aspect, but buying the right stocks at the right time and price is more important.

This new post is mainly to talk about the selection of high-quality growth stocks and the timing of investment from the perspective of an electronics researcher.

(1) What is growth investment
Growth investment is to find a company with room for growth in a certain field. Before it grows to the ceiling (a reasonable market value for reference), you can continue to buy as long as you are sure that the company is still moving along the growth track you have studied before. It doesn't matter if it's cheap or not.The indicators you need to pay attention to are "continuous" and "significant" growth and far from the ceiling.

(2) How to choose real growth investment targets

Growth is generally measured by profitability. A good growth investment should look for a company whose net profit can continue to grow significantly and rapidly within 3 to 5 years. The biggest characteristics of these industries or companies are:

①High competition barriers. (Technical barriers, customer barriers, scale barriers, etc.) This is the core necessary condition for a growing sub-industry or company.

②The market size of the industry is generally not particularly small. This is only a necessary condition for big bull growth stocks, not a necessary condition for all growth investments.

③ On the dimension of demand, the industry showed continuous positive growth. (The emergence of a new market often brings the best opportunities; the industry growth space brought about by industrial technology upgrading is the second best; industrial transfer or import substitution is also possible, but this is the last)
④ "Sustained significant high growth" is the key to investment in growth companies, especially "sustained growth". In principle, this "sustained" cannot be less than 3 years.

If the two dimensions of "sustained" and "significant" have been proven repeatedly, they will increase future growth expectations and enjoy a certain valuation premium.Sub-sectors or companies that cannot guarantee "sustainability" (such as the panel sub-sector of the electronics industry) and cannot be classified into growth investment areas in the strict sense.

(3) Timing of investment and when to exit

①Long-term exit timing: the ceiling for the growth of the main business.

The ceiling is the most difficult dimension to measure. In my experience, when new technologies or products are born, they often exist in a monopoly market or a free competition market. When the product is released in volume, the industry will evolve. As long as it is an industry with high enough competition barriers, eventually Most of them will form an oligopoly market structure, so that there will eventually be two or several large oligopoly manufacturers.

Ideally, the largest manufacturer in an oligopolistic market structure can only get 5% to 7% of the market share at most. Therefore, according to the company’s ultimate state PS = 1 to calculate: when a company’s market value grows to its main business When the potential size of the industry is 50%, I will become moderately cautious; and when its market value grows to 70% of the potential market space, I will recommend selling, unless it has better new business and starts a new round of growth cycle.

Therefore, if the potential space cannot be measured, and there is no "reasonable market value for reference" reference company, then when the market value is too large, the investment will continue to worry about the problem of the ceiling, resulting in a slight discount in valuation.

②Short-term buying and selling time point - poor expectations.

Since the stock market has an early or delayed effect on the company's fundamentals, changes in expectations may be an important factor leading to market buying and selling, and the out-of-sync between expectations and fundamentals may cause periodic mispricing in the market, which is We were looking for poor expectations.

The so-called expectation is the evaluation of the expectation and risk of future cash flow. The theory of expectation gap includes the comprehensive consideration of factors such as growth, underestimation, and timing. It is a relatively effective methodology especially in short-term investment assessment.But the premise is that the bottom-up information mining can be guaranteed to be accurate and timely, which is also an important significance of the existence of researchers.

In this methodology, we will pay attention to whether the market's expectations of the industry and the company's fundamentals have changed and whether there will be changes in the future.Two preparations need to be made here: one is to understand what the market consensus is expected to be; the other is to dig out information beyond consensus expectations and price it reasonably.In fact, a large part of an analyst's job is to use a lot of research, data search, and calculations to mine information that is different from the market's consensus expectations (mispricing) to judge the company's buying or selling.

The expected difference is the basic training course of Shenwan Research. Although I am a researcher of Yinhe, I really want to praise it.

Wonderful comments:

Tess:

Hello, Researcher Wang!It is a pleasure to listen to your teachings!It's just that what you're talking about is probably an investment primary school course, right?Regardless of the value type or the growth type, the expectations of buying are poor.If the market expects a growth stock to grow by 20%, the actual situation will be 40%, then you win; but if the market expects a certain value stock to grow by -10%, the actual situation will be 10%, then invest with the previous growth stocks Still not the same?To put it bluntly, this thing is discounted cash flow. If the estimated present value is higher than the market price (that is, market expectations), you can buy it.All market transactions, not just investments, are like this, whether it's buying shoes, buying clothes, or buying cosmetics.

That's not what investing college courses teach, college courses are, how do you know you're smarter than that competitor in the market?For example, the stock is worth 10 yuan, but the market price is 5 yuan. If you buy it, you think the other party is stupid, but the person who sold it to you may think you are stupid.Only when you ensure that your reasoning is more profound than the market, can you make a profit.

The two major principles of finance are not the discounted cash flow, but the efficient market theory and the MM theorem.The biggest trick of investment is not to calculate the discounted cash flow, but to see if you are better than your opponent, and learn to bully the weak and fear the strong.Lions do not become kings of the prairie by fighting each other or challenging tigers; lions like to bully antelopes who are helpless, so they become kings of prairie.The famous ancient Greek saying "know yourself" is the greatest king.No matter what you do, whether it's investment or other professions, the key is to see if you have the two strokes, whether your brain is stronger than your opponent, whether your fist is harder than your opponent, and if you can't provoke the opponent, just obediently be a spectator.

(End of this chapter)