Davis double-killing refers to buying stocks at a low P/E ratio, and selling them at a high P/E ratio after the growth potential is revealed, so that you can double the benefits of the simultaneous growth of earnings per share and P/E ratio.
Davis' double play means that after years of growth, the price-earnings ratio of some growth stocks is getting higher and higher, and the growth potential is gradually disappearing, which will lead to a rapid decline in stock prices due to the simultaneous decline of earnings per share and price-earnings ratio. For example: the Internet science and technology in the previous two years,
1. Where did the "Davis effect" come from?
At first glance, "Davis" looks like a personal name. After all, there are many theories and vocabulary related to names in investment. Of course, this time there is no exception, and the "Davis effect" is caused by Scherbi? Collen? Davis invented that in 1947, he started with $5,, earned 18, times ($9 million) in 45 years, and earned an annualized return of 23%.
like a tiger, like a son, his sons and grandsons are also masters. The second generation of Shelby? Shelby Davis started his own investment company and took over the venture capital fund in new york. He invested in insurance, banks and other stocks that will never be out of date, bought natural resources stocks, stayed away from hot stocks, and chose moderate growth stocks, so that venture funds always maintained their top position on Wall Street. In 22 of his 28 years in charge, he beat the market. Chris of the third generation? Chris Davis and Andrew? Andrew Davis is a famous fund manager on Wall Street.
The Davis family is the most successful investment family in American history. For more than half a century, the Davis family has always adhered to the concept of "long-term investment is lifelong investment", and after 5 years of experiments, mistakes and improvements, the "Davis strategy" has been formed.
2. How to explain "Davis double click"?
this noun sounds very mysterious.
the official explanation is this: buy growth potential stocks at a low P/E ratio (less than 1 times PE) (increasing by 1%~15% every year), and then sell them at a high P/E ratio after the growth potential of this stock appears, so as to enjoy the multiple benefits of the simultaneous growth of EPS (earnings per share) and PE, which is called "Davis Double Click". On the other hand, when the market is in a bear market, investors often face the double blow of slow performance growth and declining valuation of listed companies, which is the so-called "Davis Double Kill".
Generally speaking, Davis' double-click means fame and fortune, and you can get both fish and bear's paw ~ you can really make a lot of money, while Davis' double-click means a loss, not to mention that you can't have both fish and bear's paw, and you can't get both.
For example, if you buy a company with 1 times PE and its performance increases by 1-15% every year, after five years, the market will give the company higher expectations, and then you will buy it with 13 times PE or even 15 times PE. At this time, the stock price has formed a Davis double click, and you will get considerable profits when you sell it. On the contrary, many people buy so-called growth stocks with 3 times PE and expect to grow by more than 3% every year. After six years, the interest rate is less than half of the former. If the growth of growth stocks fails to meet expectations or the performance changes, Davis will lose both hands, and the losses will be more serious.
3. Who plays the Davis effect best?
Buffett and his old partner Munger are the best players in this game. The game is "simple", as long as you learn two courses:
1. How to evaluate a company, that is, how to find a good company with profit growth (related to profit);
2. How to value the enterprise, that is, the buying price (related to the P/E ratio).
Munger said: Only people with character can sit there with cash and do nothing. I got where I am today by not chasing mediocre opportunities. The secret of making big money is not buying and selling frequently, but waiting patiently.
Buffett said: When the opportunity comes, you should take a bucket to pick up the gold instead of a spoon, but if you know that the opportunity is coming but you don't have the capital to buy it, you will miss the opportunity. So Buffett always has a lot of money to wait for opportunities.
What we need to do is to buy both good and good products, that is, Davis "double-clicks". Wait for a "good opportunity" to buy a "good stock" at a "good price" to achieve a perfect blow, and then hold it patiently and wait for the double gift from listed companies and "Mr. Market".
how to evaluate a company, that is, how to find a good company with increased profits?
if the stock is going to rise, the company's net profit will increase substantially. Because the price-earnings ratio will fluctuate in a range, there is a ceiling. If it is a good company, the profit will keep growing, growing and growing again, and there is no ceiling. In the long run, the most important thing to invest in is to find a company with a substantial increase in net profit.
there are three sources of net profit growth: income growth, gross profit margin increase and expense ratio decrease.
1. The revenue continues to grow, corresponding to price increase or sales volume increase;
2. The increase of gross profit margin means the consolidation of leading position and strong competitiveness;
3. The decrease of expense ratio shows that the company is well managed.
as long as one of these three items can be improved, it may increase profits. However, it is best to increase the company's profits in a stable and benign way. What we are looking for are those companies whose revenues have increased year after year, whose gross profit margin has increased or stabilized, and which can reduce costs or stabilize them.
To find such a company, we should also examine the following important factors: Buffett often talks about "the moat of enterprises". Although the company's profits have increased rapidly. But it depends on whether the company's profit can be sustained and whether it is vulnerable to attack, that is, whether the threshold of the enterprise is high enough. What Buffett values most is the moat of the enterprise, which is an important factor to measure whether a company is a good company.
give an example of some companies' moats: Maotai (6519-SH) with brand and pricing power. If I give you 1 billion RMB to beat Maotai, I believe you can't do it. Similar are Yunnan Baiyao (538-CN), Dong 'e Ejiao (423-CN) and Fuling mustard tuber. For example, Fuyao Glass (666-CN) and CONCH (6585-CN), which are controlled by scale cost, can achieve the lowest cost and the largest scale, which is also a powerful moat.
how to value an enterprise, that is, to find a good buying price?
if you find a good company with a moat for profit growth, you may not be able to make money (in the short term), but also consider the price you buy. "No matter how good the company is, if the purchase cost is too high, it will inevitably have to endure the long-term defoaming process." Howard marks mentioned in the book "The Most Important Thing Illuminated: Unknown Sense for the Thoughtful Investor" that "it is better to buy a good one than to buy one", which shows the importance of price. A company with a good price will inevitably have a suitable market valuation, that is, the price-earnings ratio.
according to the formula: share price = ＝EPS (earnings per share) x price-earnings ratio. The lower the price-earnings ratio we buy, the higher the return, and the higher the price-earnings ratio we buy, the lower the return. We all come to the stock market to make money, not to lose money. Because EPS growth belongs to the future forecast, there is great uncertainty, in order to protect ourselves and increase our chances of winning. We have to buy when the P/E ratio is low.
Buffett tells us: First, don't lose money; Second, don't lose money; Third, don't forget the first two. To illustrate this truth, Ban Jieming Graham, Buffett's teacher, named it "the margin of safety". The margin of safety always depends on the price you pay. At some point, the price will be large, at other times, the price will be small, and at higher prices, it will cease to exist. Peter Lynch, the legendary fund manager, said, "If you only remember one thing about P/E ratio, then you will never buy stocks with high P/E ratio.".
what we need to do is to buy at a low P/E ratio, so as to leave enough safety margin for ourselves. Occasionally, the stock market swings between madness and despair, such as the economic crisis in extreme cases or the underestimated opportunity of black swan in the company. This kind of opportunity is rare, and we need to wait patiently. It is by this patient waiting that the masters have gained great rewards.
Write at the back:
Personally, value investment is undoubtedly the best and most correct long-term investment method, but value investment is by no means as simple as most people think, and it also needs to read a lot of classics and change the common investment habits before.
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