Company News

LegiEX, usually profits are sought from mistakes

There is a person whom Mr. LegiEX calls "value investment fundamentalists". They have a logic that value investors do not have to worry about the rise and fall of market prices, because the benefits of value investment are essentially derived from the endogenous value of enterprises The growth has nothing to do with fluctuations in stock prices in the market.

This argument is extrapolated to the extreme, as long as it is a "good company", it is correct to buy at what price and at what time. Such as Tencent, such as Maotai, and so on.

In LegiEX's view, this is an exaggeration of the role of internal factors. Indeed, good companies can use their intrinsic value to correct undervalued stock prices, such as dividends and repurchases. In extreme cases, a company's stock price is only 1 dime, and the dividend is 1 yuan per share. Needless to say, the stock price can definitely return to more than 1 yuan. This is a mandatory violent error correction. But in fact, this does not happen often.

In most cases, a great value investment can be established because the original seller failed to realize the company's future growth potential and chose to sell the stock at the wrong price. It is the seller ’s mistakes that make the buyer wise, not the company ’s growth that makes the buyer wise.

As summarized before, there are basically three kinds of errors that can create profits: wrong information (facts), wrong interpretation of information (cognition), and wrong mentality (emotion).

LegiEX often cites an example, saying that if there is a stock whose growth is very clear and impressive, but everyone in the market has a completely consistent view of the prospect of this stock, then you will definitely not make money by trading this stock. Because no one will sell you at a significantly undervalued price.

If no one makes a mistake, you will not make a profit.

Buying big blue chips does not mean that you are doing value investment. In 2004, people who bought Tencent for three dollars at 7 Hong Kong dollars, if they carefully studied and deduced the future growth potential of this company, and then made a decision to establish a position, this is definitely a classic value investment case; last year, 450 Hong Kong dollars If you buy Tencent, just because the company seems to have continued to grow for many years, and many analysts have recommended buying, then buy it, it goes without saying that this is a complete speculation.

According to "Financial Alchemy", stock prices can never accurately reflect the true value of the company, because our understanding of the world is essentially based on prejudices and lies, and these prejudices and lies are in turn Affecting the real world, such a continuous cycle of reflexivity leads to our perception of the company's value, and its "actual intrinsic value" will always deviate.

There are usually several mechanisms for synchronizing the company's intrinsic value and external stock price. The influence from weak to strong is as follows: release of business-related news, disclosure of financial reports, dividend or repurchase, privatization or acquisition. In general, the mandatory error correction involving cash flow will be the market ’s most direct response, while the soft information disclosure will be fatalistic, a bit like communicating with the wife about the child ’s education, sometimes Everything went well, sometimes a mess.

On the other hand, the trend of stock prices is often held back by the influence of some of the most mainstream prejudices. A concept stock with no intrinsic value is simply because many people believe that its future potential is unlimited, and it can run at a high position for a long time, even Repeated highs and value investment cycles are often very long, because a wrong perception is corrected and it often takes a long time-we are usually not good at correcting our mistakes.

But the investment of T 0 is not necessarily a value investment. For example, the muddy water shorts a certain overview, and you just have a deeper understanding of the situation of this company. In this case, grab a position holding cycle Only 1 hour of oversold rebound is a typical value investment behavior-because some sellers in the market have given wrong pricing, and you are confident that this error will be corrected. In this case, the prevailing prejudice in the market has been widely changed in a strong and short way.

As a value investor, in the worst case, you must be determined to wait for the completion of violent error correction. For example, the dividend rate of a certain stock has always been 5%. You think the price of this stock is underestimated. Well, regardless of the time cost of capital, you have held it for 20 years in a row. Logically, the price of reinstatement will definitely Exceeding the current purchase price is equivalent to completing a complete error correction, but are you willing to wait twenty years? If you are willing, then you may pretend to be a thorough value investment, and if you are not willing to wait so long, in the final analysis, you are still expecting to be the future receiver and have unrealistic optimistic expectations about the stock price Willing to help you take a high position. In this case, your profit still comes from the "prejudice" of others, rather than some kind of hard-to-have, indisputable objective value / fact.

In the final analysis, value investing is a boxing philosophy that waits for opponents to make mistakes and then gives a fatal blow, rather than a philosophy of farming that springs and harvests and waits for natural changes. The core competence of value investing is to be able to distinguish the wrong pricing in the market, find out why the seller made a mistake, and know when and how the mistake will be corrected. Rather than relying on fanaticism and folly to some excellent corporate religious believers, and the so-called patience until the sea is dry.

In short, in the secondary market, all stock investment income can only come from errors (other traders), without errors (facts, perceptions, emotions), there is no investment profit