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

Chapter 9 Investing in stocks with the VC approach
Crazy Investment Brother, individual investor, published on January 2014, 1

There are thousands of investment methods. After thinking about my current method, I found that it is quite similar to the investment method of VC.Of course, there are probably tens of millions of VC methods, and what I am talking about here are only the VC methods that I personally recognize.From an investment point of view, after the word "value" is removed from the front of "investment" and simplified, the primary market and the secondary market are unified - shouldn't the essence of investment be the same?
(1) Investing in the industry is better than investing in individual stocks. When VCs inspect investment projects, they will not put financial indicators such as PE (maybe there is no PE), PB, etc. in the first place. Instead, they will give priority to the industry prospects, business models, growth rates, and development space of the projects they invest in. , In the industry with "money scene" to further select individual stocks, the probability of successful investment will be much greater.Choosing an industry is also my primary consideration when looking for investment targets.The most important point here is to look at an industry with an open mind and a dynamic, developing, and predictable perspective.For example, some stock market veterans have missed the opportunity to invest in big Internet stocks in recent years. This is because they have experienced the Internet bubble in 2000. That painful lesson made them still look at the Internet economy with old eyes. Today's consumer goods, and unlike many Internet companies in 2000, only had "eyeballs", the stock prices of some Internet companies are already supported by good financial performance.

The core competitiveness of VC investment is investment vision. I think the most important thing for individual investors to beat the market and make a lot of money is not financial knowledge or other things, but investment vision.Therefore, I will not focus on digging cigarette butt stocks in the future, because it is not my strong point in digging cigarette butts in terms of the meticulous ability to peel cocoons layer by layer, solid and extensive knowledge of financial laws and so on.I don’t have any advantages against institutional investors, even compared to many professional individual investors, but when facing an early-stage growth stock, institutional investors have little advantage, even due to various restrictions on institutional investment Restrictions prevent them from investing in time.Peter Lynch has more to say in his book about the possibility of individual investors beating institutional investors.For example, I believe that my involvement in SouFun and Huanju Times this year will be earlier than many investment institutions.

I believe that in the era of the Internet and mobile Internet, it is easier for individual investors to establish communication and obtain information with other individual investors and industry professionals through platforms like Xueqiu, while the advantage of institutional investors in obtaining information will be greatly reduced .We have seen on Xueqiu that the quality of grassroots research reports of some crowdsourcing models is not inferior to that of many formal investment institutions.If individual investors can be organized effectively, they may also surpass institutions in terms of information processing.Having said that, I hope that the investment grassroots organizations I am involved in now or in the future will have the opportunity to become such success stories.

(2) VC investment attaches great importance to management, (leadership factors) corporate governance and ownership structure.This is what I value when I invest.Buffett roughly said that the business model is more important than people, because one day a company will be led by a fool.Many people really only value the business model, but don't pay much attention to the investigation of management, corporate governance and ownership structure.Regardless of the background and real meaning of what Buffett said, his requirements for the integrity and ability of management in actual investment are not low at all.Because no matter how good a company is, if the management is not good, it will collapse.

(3) The logic of VC investment is to cast a wide net and catch big fish, that is, to invest in multiple projects, and each project pursues a high rate of return.For example, if you invest in 10 projects, 7 of them will be lukewarm, but as long as there is 1 project, you will earn back by a hundred times.The pursuit of high returns on investment projects may seem greedy, but it is actually a requirement for a margin of safety and a high standard for the selection of investment targets. (You can’t do more just for the sake of more) This actually implies a reason that you can’t pay a high price for the expected growth in the future, and the lower the cost, the greater the return.Specific to my investment, I usually hold 5-10 individual stocks, and when the position of each individual stock is higher than 25%, I will consider reducing the position.Appropriate dispersion is the magic weapon for me to survive all kinds of black swans, and it also means that I realize that my investment judgment will definitely be wrong, and there may be more wrong than right.Even so, there is still a winning strategy.Debates about centralization and decentralization are never fruitful, just in moderation.Moderation varies from person to person. Anyway, extreme concentration and extreme dispersion are not advisable. If you encounter a black swan in extreme concentration, you may have to run naked. Simple.

(End of this chapter)