"The first step of risk control is to find a good company, a company that is not worth investing, and a company that does not create value for shareholders. In the long run, it is almost meaningless. "
"A good company must create profits and cash flow for shareholders for a long time, which is the basis of my investment, followed by value discovery."
These are some of the views given by Cao Mingchang and Lan Xiaokang, two fund managers of China Europe Fund, in an internal dialogue.
In China Europe Fund, Cao Mingchang and Lan Xiaokang have been partners for many years. They are also making value investments, but in a slightly different style.
Cao Mingchang concluded that their style is the difference between Graham and Fisher.
Cao Mingchang has more than ten years of investment experience. How do these two styles complement each other? What's their latest view? The following are the highlights of their answers, which are shared by smart investors.
Q 1: what is the most promising industry at present and will perform better in the next three years?
Cao Mingchang: I am more optimistic about the pharmaceutical sector. From the perspective of demand, sustainable growth in the future is expected. The pharmaceutical sector 2065 438+02-2065 438+04 is a bit like the liquor industry: on the one hand, because the cost of medical insurance has risen too fast, the government has curbed the excess cost in a short time through medical reform, but the aging trend has prompted the future growth to be expected.
On the other hand, with the development of the industry, the concentration will increase, and the demand for high-quality innovative drugs and medical services is getting higher and higher. In the future, the more companies are invested, the more valuable companies with R&D capabilities will be.
Lan Xiaokang: I am optimistic about the banking and insurance industries. The banking industry has low valuation, room for valuation improvement and good performance growth. Insurance is also worth looking forward to for a long time. Industry attributes ensure the expectation of stable growth in the medium and long term. Insurance companies are also increasing the proportion of equity allocation recently. Because I am optimistic about the future of the stock market itself, I am also optimistic about insurance.
We are also optimistic about the automobile industry. I think innovative medicine and medical services also have good investment opportunities, such as textiles and clothing, shipping, nonferrous metals and so on. Partial consumption, can also be properly configured, because these are cyclical industries, at the low point of prosperity and valuation.
Q 2: What do you think of "grasping certainty in uncertainty"? What is the definition of certainty, and what is the definition and pricing of uncertainty?
Cao Mingchang: Because the investment is in the future, the certainty has conditions and scope, but the uncertainty is absolute. Doing value investment needs to find something relatively certain. A good company is easy to determine, but it is difficult to find the right time.
Assume that the whole market has a value center and a process of returning to value. You know it will come back sooner or later, but you don't know when it will come back. This is uncertainty. Therefore, we must grasp the certainty. When the price is very low, the lower the price, the more you buy.
Lan Xiaokang: Investment is essentially pricing risk, and uncertainty is risk. Even if it is uncertain, if the valuation is extremely low, the risk is acceptable as long as the price is right.
For example, now that cyclical stocks are at a low valuation, it is necessary to consider whether the industry is at a low valuation for a long time or in a low boom, and whether there is enough room for improvement. If so, you can still make money even if its future performance has not improved or improved very little. Therefore, a good way to deal with the so-called uncertainty is to look at the odds.
Under this premise, we should try to find companies with low long-term uncertainty. Every industry has uncertainty, and every company has its uncertainty, but we should look for enterprises with higher certainty.
In fact, this certainty is related to the investor's own ability. If you see farther and clearer than others, what is more uncertain in others' eyes may seem more certain to me. This requires us to keep learning and strengthen the extraction and refining of information.
Q 3: how to control risks and avoid a sharp retreat?
Because we can't completely avoid systemic risks. When the market falls, my style may be relatively flexible. If it falls much, something will go wrong. At this time, it is necessary to consider my investment style, so as to make adjustments and avoid risks.
Lan Xiaokang: If one word is used to describe what investment itself should do, it is "controlling risks", which can be said to be almost all of investment.
In fact, everyone is more or less aware of risk control, such as building a portfolio to avoid non-systematic risks. But from my understanding, the first step of risk control is to find a good company, a company that is not worth investing and does not create value for shareholders. In the long run, it is almost meaningless.
A good company must create profits and cash flow for shareholders for a long time, which is the basis of my investment, followed by value discovery.
The second step is to pay attention to the competence circle and stay away from those companies that are not in the competence circle. No matter how attractive it looks, as long as you don't understand it and don't have the corresponding resources to understand it, then don't vote. This is also an important step in risk control. We should be more careful in the first two steps.
In addition to this kind of control in advance, the control during and after the event is also a very key link in risk control. Because there will still be some fundamental changes after buying, once the fundamental changes change the original reason for buying, you should change it in time and stop the loss resolutely, instead of sticking to your own opinions.
Q 4: how do you view the fluctuation of short-term performance rankings?
Cao Mingchang: This is a series of reflections, which will have an impact from investment to market channels. If you do well in the short term, you should be careful whether there will be problems in the future. If you don't do well in the short term, you must reflect. Short-term fluctuations can encourage you to optimize your investment goals.
Failure is the mother of success, and the experience of failure will be of positive help to future performance. But only if the channels and customers have enough trust in you.
In fact, when channels and customers face fluctuations, their ideas are sometimes inconsistent with those of fund managers, which requires us to continue to communicate and do a good job in investor education.
When I choose to buy a company, I must choose a good company with value. If the share price of a valuable company falls, I should keep buying.
The same is true of funds. Even when the performance is not good, if investors feel valuable, they should continue to hold or continue to buy, instead of putting pressure on fund managers when they encounter fluctuations.
Therefore, to form a virtuous circle with negative investment performance, all parties need to work together to turn pressure into motivation.
Lan Xiaokang: The market is a voting machine in the short term and a weighing machine in the long term. In fact, any industry and any performance company may encounter adversity and cannot beat the market. In the long run, a good company can beat a company with no performance.
Question 5: What is the biggest difficulty in practicing the concept of value investment in China?
Cao Mingchang: Relatively speaking, there are not many outstanding listed companies in the A-share market that really deserve long-term holding. If the capital market can solve two problems, it will help us to better practice the concept of value investment.
First, there must be good listed companies. The A-share market needs more excellent companies to participate, and it is expected that the science and technology innovation board will be improved after its launch.
The listing of excellent companies is related to the tolerance of the whole market. Many excellent companies need more investment in the early stage and do not make money, which requires that the conditions for listing in the capital market should be relaxed. At the same time, it is necessary to increase the punishment for illegal acts and increase the cost of illegal activities.
To sum up the above two points, the capital market should be lenient and strict. Before A-shares were not perfect in system, everything would be fine as long as they went public. The science and technology innovation board has done a good job in this respect, which is conducive to the listing of excellent companies. In addition to increasing the supply of local outstanding companies, we should also be in line with international standards and increase the channels for investing in more outstanding global listed companies.
Second, buy at the right price. There are few excellent companies, which are in a scarce state, and the price becomes relatively unreasonable and the valuation is high. This is the difficulty. Once the supply of excellent companies increases, the price will become more reasonable.
Lan Xiaokang: The biggest difficulty lies in getting the recognition of investors. In the past few years, value investors have been relatively silent, and investors' evaluation of value investment is relatively general, but in fact, the benefits of value investment are very considerable.
There are many reasons, such as the preference of retail investors and the characteristics of short-term assessment of institutional investors, which lead to a high preference for short-term returns.
Famous value investors in the market may have been recognized and sought after by funds, but the number is still very small, even if some value investors have relatively stable long-term returns, it is difficult to be recognized. If you only do it well, it will be more difficult to obtain long-term recognition of funds.
At present, investors in the market are more inclined to judge their own market style, prefer short-term flexibility, and have an immature understanding of value investment. But in the long run, the return of value will definitely happen, any good company will go up, and the value investment will definitely get a good return, which has not been fully recognized by investors at present.
Q 6: After years of cooperation, how do you evaluate each other's investment style?
Cao Mingchang: Simply put, the difference between our investment styles is the difference between Graham and Fisher. I like Graham better. Well-off people prefer Fisher, but they are not absolute in investment strategy: for example, I may be 15% Fisher plus 85% Graham, and well-off people may be 50%-60% Graham plus 40%-50% Fisher.
Lan Xiaokang: Cao will always be a pure value investor. Although he is a moody man in life, he is very rational in his work. In the specific investment, he is very calm about every transaction, hardly disturbed by emotions, truly integrates knowledge and practice, implements and adheres to his investment strategy very well, and will not easily change his investment decision because of market fluctuations.
In addition, his investment style is highly open. For example, our investment industries are relatively many, and we often need to learn and constantly break our knowledge limitations. He is willing to listen to other people's opinions and opinions in this regard.
In addition, Mr. Cao has rich experience and good macro-control in the risk control of the whole portfolio construction, and his performance fluctuation is low, which is one of the reasons why he can outperform the Shanghai and Shenzhen 300 for so many years.
Q 7: How to treat the concentration and dispersion of positions?
Cao Mingchang: Personally, I prefer decentralization. Because if the positions are concentrated, you may miss some good companies. I have high requirements for valuation, so I am relatively tolerant of the company's texture. From my point of view, I hope to be more dispersed and add some certainty in the face of uncertainty.
Lan Xiaokang: My location preference is more concentrated. If stocks with higher positions perform well, the overall return will be higher in the end. The disadvantages of high concentration are also obvious. If the stocks with high concentration have the risk of inaccurate industry or personality judgment, it may lead to large fluctuations in the fund's net value.
I think it is very certain that a good company is selected after a long period of investigation. Therefore, I will choose the optimistic industries and the best companies in these industries from my more than 30 positions, and then match them reasonably with the valuation. I think it is impossible for every good company to have problems at the same time. This is my view on the concentration of positions.
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