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

Chapter 8 Typical Misunderstandings of Growth Game Players
hbwhzs, individual investor, posted on March 2013, 3

Assume that there is such a growing company with an EPS of 1 yuan in the initial stage of listing, an annual growth rate of 9% in the first 20 years, and a plateau (zero growth) in the 10th year.

If there is a definite growth in the next 9 years, using Peter Lynch's PEG method, 20 times is not high!So, in the first year, he was willing to buy it for 20 yuan, and so on.

Although we all know that a big tree will not grow to the sky, but because the years of growth are so long, growth investors think that the previous history will replicate the future in the ninth year, but the problem arises in the tenth year— —The company's performance growth suddenly disappears.Angry growth stock investors voted with their feet, giving a price-to-earnings ratio of 9.

When the company's stock price dropped from 86 yuan to 43 yuan, it is obvious that the company's profitability and company value have not changed, so where is the root of the problem?

The only answer is that growth investors inadvertently pay an excessive premium for growth, which has always been the source of tragedy for "growth gamers".

The closest case at present is Changyu, and similar ones include Luolai Home Textiles, Rainbow Shopping Center, and Guangzhou Friendship.

I don’t know if the above-mentioned cases in the future will be the turn of today’s people who are still willing to pay a premium to buy Yunnan Baiyao, Pien Tze Huang, By-Health, Shanghai Jahwa, etc., which are expected to grow.

Buffett said that he learned from Munger that "buying a good company at the right price is better than buying 'cigarette butts' at a cheap price." Which investment he cited as a classic has quoted more than 15 times.

What is certain is that when value speculators lose their enthusiasm and leave the market, the opportunities for real investors slowly approach.

In 2014, I saw this passage in Vanke’s 2011 annual report: “There are many ways to measure the value of a company’s shareholders, but two indicators are obviously crucial: one is the ultimate limit of the company’s scale, which determines The long-term growth of the enterprise; one is the return on assets of the enterprise in the sustainable operation stage, which determines the long-term income level of the enterprise."

I think this passage understands the way of valuation.

Wonderful comments:

Seaside Blacksmith:

I like the passage of Vanke, but disagree with the overwhelming comments on growth stocks below.Make a cult statement: Some value investors suffer losses in growth stocks, not because the price-earnings ratio they buy is too high, but too low.When a growth stock is in a truly young and vigorous growth period, and the price-to-earnings ratio is generally between 25 and 50 PE, these value investors dare not buy it at this time.And when a growth stock has been growing for a long time and its reputation as a growth stock is truly established, its growth actually begins to slow down, and the growth space becomes smaller. (Think about Maotai, Changyu, Ejiao, Suning, Baiyao, Vanke, Apple) Because far-sighted investors began to sell, the price-earnings ratio trended below 30PE, and the long-awaited value investors bought these former growth stocks at a PE price-earnings ratio of more than 20, and then watched their price-earnings ratio fall by more than 10 times.

At this time, they reviewed themselves: 20 times the price-earnings ratio is really too high!But they didn't see that those investors who bought real growth stocks with a price-earnings ratio of 20 to 10 times made a lot of money many years ago.Therefore, unless it is very, very certain, (there is no such time), I will not buy growth stocks with a price-earnings ratio of just over [-] times.At this time, it is better to simply buy those undervalued stocks with a price-earnings ratio of [-] times or single digits, and sell them in time when they rise.

hbwhzs:

I also slowly came from speculation. I saw a passage from teacher wjmonk two years ago. I don’t know if it’s redundant to put it here:

(1) The trading market has not always existed, nor will it last forever.The lifespan of the stock market is not as long as human history, and so is the market economy.

(2) Value investing is not the way to obtain the highest profit, absolutely not, but it is in line with the natural way.

(3) Value investing is not a moral investment, let alone a moral consumption. Sharing certainly does not meet moral standards, but I think it is better than plundering.I personally do not look for the so-called lowest point and highest point when investing. The right price is my requirement.

(4) I personally think that the longing for independence and freedom should not only belong to the strong, but should belong to the majority of workers.Value investing is an investment method that belongs to workers.I hope to find an investment method that is suitable for most people, so that the surplus accumulation of everyone's labor income (that is, deferred consumption) will not be slowly swallowed by various forces.The most valuable thing about value investing is that it does not require a high IQ, but only common sense and rationality.So value investing is my choice.

(End of this chapter)