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

Chapter 13 Experienced people talk about investment experience in growth stocks (2)
Taking Suning as an example to illustrate the investment decision-making process

Xueqiu: How did you discover investment opportunities in past investments?
Wang Xiaogang: Discover it based on your own life and experience.For example, Suning, I have stayed in Midea, which is very important, it is the downstream of Midea; another is Tomson By-Health, because our family eats Amway, and I often eat it, so I may have some impressions and conclusions; another such as Wine, I think most people can understand China's wine culture, and wine accounts for a high proportion in my combination; and consumer electronics, we don't necessarily use Apple, but we must all know about iPhone and iPad, along the Apple industry If you sort out the companies on the chain, you will also find some good companies.

For me, the focus is on industries and companies that can be roughly judged by common sense in life, because we are consumers before we are investors.

Xueqiu: What is your decision-making process from identifying opportunities to realizing investment?
Wang Xiaogang: Actively follow up and wait patiently.According to the three elements just mentioned to research and follow up, the upstream and downstream of the industry and the company first understand clearly.For example, our researchers at Goertek have conducted research five or six times, and I have also been there several times. The research process usually lasts for several months before we can determine whether the stock is suitable for investment.When the stock is set, look at the price. Sometimes the price is just right and you can buy it quickly. Sometimes the price is too high and you have to wait patiently.For example, BY-HEALTH has set its target, but waited for a year to find the right price; Goertek waited nearly half a year before starting to buy.

Xueqiu: After buying, how do you choose when to sell?
Wang Xiaogang: To be honest, there are very few excellent high-growth stocks, and it is not easy to find an excellent growth stock.Therefore, for high-growth stocks, I tend to follow them for a long time but will not hold them for a long time: First, because we are public products.Public products have a problem of smooth fluctuations in net worth. They cannot all follow the ups and downs of the market, otherwise the net worth fluctuates sharply, and customers will feel pressure and pass it on.I know how to do swings, but in fact doing swings has not made too much positive contribution, and even objectively reduces the rate of return at present, but the purpose of my doing it is to smooth the net worth.The net value of my current product Dingfeng Phase 8 and Phase 4 is still around 2009 yuan, and the customer's tolerance is relatively limited. If the net value is at [-] or [-] yuan in the future, as the customer's psychological tolerance increases, my The side should be covered for a longer time, and the band will be less.The second is related to valuation.If the price is too high, I will take less, but I will not stop taking it, and I will continue to follow up.The third is that if the management is found to be dishonest during the follow-up process, it will not read anything, and it must be sold immediately.We cannot judge and track companies whose management is dishonest.Fourth, if the industry has reached an inflection point.For example, the home appliance chain had an inflection point in [-], and e-commerce was rising rapidly. It is impossible for this industry to have high growth, so let’s not do it.

Xueqiu: Is it possible to understand the price in this way, for example, if the price-earnings ratio has reached 40 times, you will sell part of it, but you will continue to hold and track it?

Wang Xiaogang: I will be vigilant if it is more than 40 times, and the ratio may be reduced, and then continue to track, maybe after a few months or half a year, the valuation is appropriate again, then increase the position and repeat the swing operation.

Xueqiu: Which investment cases are you particularly satisfied with so far?

王小刚：最满意的是苏宁云商（SZ002024），2004年开始跟踪，2007年放弃，跟踪期间共上涨了近20倍；近1年来的汤臣倍健（SZ300146）、歌尔声学（SZ002241）、ST酒鬼（SZ000799）等也感觉比较满意。

Xueqiu: Can you use one of the cases as an example to explain how you consider various factors in the investment process?How to discover, how to determine, how to value, how to choose when to buy and sell?

Wang Xiaogang: Let’s talk about Suning.The historical performance of growth stocks is also very important and can be used as an important reference indicator. In 2004, I read Suning's prospectus, which showed that it had doubled in the past few years, and in 2003 it had a profit of 1 million yuan, which attracted my attention.Then I got to know my colleagues from Midea, and asked them what they think of Suning's development momentum, and is it possible to make more than one billion yuan in profits in a few years?They said that the development momentum is very good, and the possibility of reaching more than one billion yuan is quite high, so it has attracted my attention.

Snowball: What is the logic behind their judgment?
Wang Xiaogang: According to their cooperation with Suning and the development trend of the industry, they believe that the industry is undergoing great changes, and Suning is also developing very fast.When they said this, I studied it carefully and compared it with Best Buy. Best Buy had a market value of 200 billion US dollars at that time, and Suning had a market value of 30 billion RMB at that time.I think China's population base should be able to support a very large home appliance market. When the price difference between the US and China is not big for a single product, the amount consumed in China may be more than that in the US. The actual situation depends on Suning's sales in 2014. Um - about 1000 billion yuan is known.I started my research on National Day in 2004, and in the three months from New Year's Day in 2005, I visited more than a dozen stores, and visited and learned about Midea.

Snowball: What elements do you look at?

Wang Xiaogang: Let’s see what’s going on with these stores, whether they are expanding, and what is the success rate of the newly opened stores.After studying for 3 months, and then comparing Best Buy, I came to a conclusion: Suning can grow by about 3% every year in the next 50 years, and the actual situation is that the annual growth is nearly doubled.So when Suning was around 1 yuan on New Year's Day in 2005 (about 50 times PE in 2004), I was sure that Suning could invest.By the first half of 25, the market was already crazy, and Suning had a price-earnings ratio of more than 2007 times. After all, the growth rate was very fast, and it might fall back. (When the growth rate of high-growth stocks falls back, the lethality to the stock price is quite large.) Therefore, in May and June 2007, Suning gave up tracking when the price of Suning's recovery was around 1000.After I gave up tracking, Suning's highest price rose to around 1300 yuan. In 2007, many stocks were very high, so it was not safe to hold them.

As a second example, we can talk about the Oriental Garden (SZ002310). I just arrived at Dingfeng at the end of 2009. When I participated in its road show, I reported that Oriental Garden was growing very fast, and the profit forecast was 3.3 yuan. Many people did not believe it. interest.Because if the chairman is reliable, it will far exceed market expectations.For example, the market expectation is 2.5 yuan, and a researcher gave 3.3 yuan. The chairman said more than that, but in the end it was actually 4 yuan.I researched it and found that it will indeed grow very fast in the short term, because it can accept orders immediately after getting the money, and it will accelerate its development; because it is a project with advance funds, it can advance funds to start immediately after getting the money, adding There will be a lot of business, so the growth in the first year will be very high.At that time, we only did it for one year, because the stock price rose far more than expected, and we didn't do it in July and August of 1.

Xueqiu: Are there any cases of setbacks?
Wang Xiaogang: Yes, there are many!Of course, it is not convenient to say the company name.I have encountered a lot of high growth that the chairman said has not been realized, and the high growth has failed.Of course, there are reasons for the management, as well as our judgment on the industry.

Identify pseudo-growth: more research + invest in the circle of competence

Xueqiu: What do you think are the main risks in investment? Using the word "pseudo-growth" you mentioned before, how to identify it?

Wang Xiaogang: Pseudo-growth means that the expected growth has not been realized.To identify is to do more research and research in the early stage to improve the understanding of the industry; in addition, it must be within the scope of your grasp, such as high-tech things, most of us cannot judge.

Xueqiu: When conducting research, what aspects do you pay the most attention to?

Wang Xiaogang: The three factors mentioned just now.This research does not mean that we only go to the company, the company is only a small part, the peripheral research is more important, and the upstream and downstream of the industry and the status of the industry must be considered.For example, if you look at Suning, you must look at Gome and Best Buy; if you look at By-Health, you must look at Amway.The sustainability of the company's growth must be verified through research.

Xueqiu: What industries is your personal circle of competence in?
Wang Xiaogang: Before we are investors, we are ordinary consumers first, so the demand for consumer electronics (such as mobile phones, etc.), the demand for health, and the demand for drinking when socializing, these are all things we can feel and understand through common sense. Judgment, the specific point is the current big consumption field.

Xueqiu: When investing in companies in these industries, what factors do you think should be paid attention to?

Wang Xiaogang: First, the size of the industry space is very important, and the size of the stage affects the company's valuation and growth space.For example, I am very optimistic about the health care product industry. I am about 40 years old and I take health care products by chance. My parents eat them every day. You are still young and don’t know how to eat them. But after more than ten years, you will first Buy it for your parents, and then buy it for yourself, so there will be a lot of room for this industry.

Second, if the industry is good, the company can do it itself.Therefore, it is still necessary to look for companies that already have some status in the industry, and history has proven that they are capable and have done a good job.

Xueqiu: Going back to ask another question, you said just now that you have gained a lot of experience and lessons over the years, so if I ask you to sum it up, what lessons do you have?

Wang Xiaogang: There are actually many lessons.First of all, the biggest thing is the investment philosophy. In the long run, the stock price is linked to the fundamentals, but it took me 10 years to firmly believe in this truth.If there is a lesson to be learned, it is to realize this earlier.

Second, we must pay attention to the growth of the company.If you can’t choose high-growth ones, or if you choose fake growth, the risk is still very high. This is very professional, and you must study it thoroughly. You can’t simply say "buy beer in summer and white wine in autumn". too easy.Liking the company's products is only the first step and the beginning of research, but whether it is suitable for investment is another matter.

I suggest you remember Peter Lynch's words: "The best way for everyone to make money is to invest money in a growing small and medium-sized company. This company has been profitable in recent years and will continue to grow."

Finally, I added: "It is best to be a high-growth, large-scale consumer company with a continuous growth rate of 50% for several years."

Wonderful comments:

Snowball user GT Zhou replied to Guolao:
This passage is quite interesting: There are actually many lessons.First of all, the biggest thing is the investment philosophy. In the long run, the stock price is linked to the fundamentals, but it took me 10 years to firmly believe in this truth.If there is a lesson to be learned, it is to realize this earlier.

GT Weekly Comments: It took people in the industry 10 years to firmly believe in the principles of fundamental investment, and many retail investors will never understand it in their lifetime.I am more fortunate to learn computer. It takes 10 years to understand the things that need to be understood. It takes a few months to write a program and build N multiple models for testing. . IT changes life!It is recommended that everyone learn programming and open the door to another world!
old monk:

Small and medium-sized companies in the United States are cheaper than large companies. If they are much more expensive than large companies, Peter Lynch may not be so amazing.Sustained high growth of more than 50%, and can also bring excess returns to shareholders, requires the company's return on investment to be higher than 50%, or to be able to issue additional shares at a price much higher than the reasonable value.There is also a false high growth, which is an illusion caused by the rising cycle of returns.For example, the return on net assets of a certain industry is between 8% and 15%. In a certain year, the net assets are 1 yuan, the earnings per share are 0.08 yuan, and the return on net assets is 8%. In the second year, the return on net assets rises to 11%. Earnings per share are 1.08x11%=0.12 yuan, an increase of 50%.But this kind of high growth is meaningless, because it will be smoothed out by a sharp decline in the down cycle.The basis for assessing the company's value should be the earnings per share calculated from the net assets and the average return on net assets deduced from history, otherwise it will be confused by false high growth.Sadly, our country's corporate history is too short to extrapolate what a sustainable ROE should be.

(End of this chapter)