A Good Stock Needs To Meet Four Criteria.

A good job

According to the author's research on investment theory and the summary of years of actual combat experience, it is not difficult to do well in value investing. As long as we insist on buying four good stocks, we expect to get a relatively good return on investment.

Then, what is the four good stock? It is a stock that needs to meet the following four.

First of all, a good industry is very important. The so-called "men are afraid of going wrong", it is easier to create and realize value in a good industry.

The growth rate of the industry is fast, and the growth of enterprise value often needs to be built on the basis of high growth in the industry. Historically, there are few companies like Marlboro cigarettes that achieve long-term growth in low growth industries.

At the same time, the business mode of the industry is better. For example, life insurance and aviation are significantly different. There are many cases of airline bankruptcy in the world, but life insurance is less. The operation mode and the uncertainty of different industries are obviously different. The value creation of enterprises will be quite different. Buffett likes insurance and hates aviation.

Another point is that the demand for cash after the growth of business value is also important. For example, although some enterprises can earn a lot of profits, the new profit growth needs a large amount of capital investment.

In this respect, the characteristics of brand liquor are quite different. Different formulations and products protect enterprises, competition is orderly, and new capacity is relatively small for capital consumption, which is why brand liquor has always been an important reason for the high-end valuation of stock market.

Good management and good mechanism are equally important.

Even good industry, but no good management is still difficult to create value, such as attractions companies, have comparable natural resources monopoly and the rapid growth of customers, but the management performance and mechanisms are scarce, few companies with high quality returns.

In addition, the mechanism is equally important. We will have a good idea of the comparison between the operating results of most state-owned enterprises and their restructuring.

From this point of view, the capital market should treat the management incentives with a tolerant attitude. Incentives are much stronger than those without incentives for the long-term development of enterprises.

The reason for having good products is very simple. The competition between Microsoft and ordinary textile products is obviously different.

Products with barriers can isolate enterprises from fierce competition such as price wars, service wars, advertising campaigns, etc. it is easier for companies to create profits and return shareholders.

In recent years, the dynamic portfolio fund has carried out value investment on the basis of the above four reasons, avoiding the theme stocks and the "bad" companies.

Apart from the choice of stocks, the larger assets of the management of friends may need to consider the allocation of industries and sectors at the meso level.

Here I would like to talk about how we feel about the industry configuration.

In fact, it is not difficult to do industry allocation, the main basis is "underestimation", which industry is obviously undervalued in the whole market, and increasing industry configuration can generally get better returns in the medium term.

{page_break}

There are two kinds of underestimation. One is the analysis of the current operation of the industry and the profitability of the enterprises, and the overall valuation of the industry is low.

As early as 2007, the coal industry was widely recognized as a valuation depressions, but many people refused to buy stocks of rigid coal stocks because they were not hot spots or the future price trend was not clear.

But in the two quarter, coal stocks rose all the way, and the industry boom became more and more optimistic in the future.

At present, the steel industry seems to have something in common with the coal industry at that time.

The second underestimate needs stronger research support, because this underestimation is not simply based on the valuation but on the future development.

For example, the food and beverage industry in 2004 and 2005, the valuation of major companies in the year was relatively high in the market, but the subsequent corporate earnings continued to exceed expectations in successive quarters.

For example, in the securities industry in 2005, the valuation of the year was almost the most expensive in the whole market, but if we take into account the alarming growth in 2006, the securities industry in 2005 will be an excellent allocation industry.

It should be said that Peter Lynch is in the grasp of the industry's rotation of superhuman cognitive ability, in order to lift the weight of the huge Magellan Fund Management, and achieved amazing results.

Value investment has a variety of subdivision operation logic, whether it is completely bottom-up or from the middle industry rotation configuration, each has its own inferiority, but it can be said that eventually all roads lead to Rome.

However, for those who are not familiar with the strategy, the best value investment strategy is to hold mutual funds for a long time or to reach Rome.