Investing is probably the slowest learning discipline. Sometimes it even makes people wonder if it is a science. The main reason for this question is that each theory seems to be logical and even gorgeous about how to buy stocks and make the most money, but do people really make money through these theories?
That’s the problem.
Markets do not always seem to behave according to a certain pattern, and sometimes the degree of theoretical derailment can no longer be fully explained by the term “short-term”. In this way, after a believer of an investment theory finds that the rules he follows have failed in practice for a period of time, as described in the fairy tale “The Happy Prince”, he will be so angry that he will push the original idol down, and then attach himself to another. One foot down. The original theory may be turned over in the next cycle, or it may be thrown into the garbage heap forever.
Much of what is known in investing is not like a natural discipline—like medicine, for example—that evolves with technology. There were originally tens of thousands of methods in the world that tried to expel the “devil” in the body by drinking water boiled with grass roots, but now they have evolved to only need to take a few small capsules; no one will believe that epilepsy is a sign of spiritual possession. shape.
But when it comes to investment, everyone’s understanding not only has no convergence trend, but has become more and more diversified with the development of technology. Today, there are still many large-scale investment banks who want to use Feng Shui to predict the stock market, and there are many believers. Many of the most basic concepts also have room for discussion. For example, investors buy stock in a company based on its present or future.
At first glance this is a very stupid question. Even the most obvious books, such as “Stock Market in One Day”, will first tell investors to be careful, buying stocks depends on the future of the company behind the stock. So does investing with buying the future as the norm really yield better results?
If investors really do this, the most appropriate selection criteria should be to find those with the highest market share or expected profit growth rate among many listed companies. Regardless of timing, it’s best to assume that an investor can actually find the holy grail of investing in a star-studded list of companies. He is sure to make a fortune from it. But it has to be said that this kind of thing is too difficult.
I have read a popular science book about the future of the universe. The book mentioned that if people want to steadily increase the accuracy of the expected future by one percentage point, the existing information reserve needs to be increased by several powers of 10. I can’t remember the exact number, but it’s a number that a human being can’t reach anyway. Obviously, the idea of investing in the future is smart, the problem is, it’s too hard to operate. And what about investing now? Much simpler.
Investing now means that the investor believes that the company and the industry in which it operates have not changed dramatically between the time he bought the stock of the company and the time he sold the stock for some reason. Well, just knowing the basics—literacy and numeracy, for example—and finding the best one on the list of companies can make a good investment.
Anyone with an IQ above 70 can probably do it by “investing in the present”, but there must be some imperfections in the results. Otherwise, why is the average IQ of fund managers higher than 70?
Indeed. The reality is constantly changing, and it is so difficult to predict the future, and this difficulty also includes the difficulty of predicting what the best companies in the most powerful industries will become in the future. Looking around the world, the most famous examples are Kodak and Nokia, who were once the undisputed kings of their industry, but soon, the revolution in their industry brought these two giant companies to the ground. Kodak filed for bankruptcy protection and was delisted from the New York Stock Exchange. Later, although he did it all over again, it was nothing compared to his previous achievements.
Nokia’s challenger is Apple, and Nokia’s decline is very fast. It only took 5 years from the world’s first to being acquired by Microsoft. Now it is still listed on the New York Stock Exchange, and its performance is occasionally reasonable, but the former glory is also gone.
From this we can probably determine a formula. What investors need to be clear about is, how likely is a best company to go bad? If this probability is small enough, then investors with an IQ of 70 will be able to defeat the lofty ideals who are looking for the next holy grail of investing. At the same time, it also shows that the saying that buying stocks is buying the future is probably wrong.
While there are so many precedents to show that the world is changing rapidly, for the top companies in most industries, people’s imagination of the rate of change is slightly exaggerated.
Here are two more examples from industries that I have followed.
One is a liquor company. The brands and sales levels of Maotai, Wuliangye and Luzhou Laojiao have been outstanding in many competitions since the 1970s. This advantage has been maintained until now, after changing the economic system, reversing consumer preferences, and various disruptions in marketing methods. It has lasted for about 50 years.
If a “fool” bought the company’s shares when Maotai was first listed, he would have obtained about 436 times the return, with an annualized return of 33.5%. This level of return should exceed the past performance of all fund managers in China.
If you think that Maotai’s industry is too traditional and belongs to a very unique category among many tracks, let’s take another example of the IT industry.
In 2007, I bought shares of Tencent. But I sold it after it doubled. Why did I sell these Tencent shares? There is another story here.
There was no Shanghai-Hong Kong Stock Connect more than ten years ago, and it was very troublesome for ordinary investors to open an account in Hong Kong to buy stocks. A friend and I invested the same amount of money and shared an account to invest in Hong Kong stocks. But a few years later, a problem arose – he was divorced, and his wife knew that this guy had a considerable amount of money in his Hong Kong stock account that could be distributed as joint property.
He was forced to sell those shares, and at the same time persuaded me to do so (the account was opened in his name, and the so-called persuasion was actually semi-forced). At that time, I considered that Tencent, a company that has been in the position of the most profitable company in the turbulent Internet industry for so long, is likely to change its dynasty, so I agreed with the divorced guy. Unexpectedly, Tencent has maintained its position since then, and its stock price has risen 10 times.
This is a lesson. It tells everyone: first, don’t do things about making money with people who like divorce; second, if you can’t accept having a wife with someone else, don’t have a stock account with someone else.
Third, and more importantly, in weakly cyclical industries, the ability and resilience of companies with considerable market advantages to retain their current positions is quite strong. This is true even in industries with frequent technological iterations. In other words, if an investor finds out that a company is a money maker in its industry, there is every chance to buy its stock and enjoy a 10-year dividend.
From a statistical point of view, it is very unreasonable for me to list such powerful and profitable companies. Is there any historical data that can help us?
In 1994, American management expert Jim Collins wrote a very famous book called “Building to Last”. In his book, he eloquently lists 18 great companies that are so special that they could destroy human beings – at least after his own death.
Only 50% of the 18 companies are excellent as always, and most of the others can only be described as passable, and some can even be described as bad. Most of all, Collins also put Ford and Motorola on the list – I guess if this teacher Ke has a Weibo account, I am afraid that because he is optimistic about these two companies, he will be forced to get up late at night to delete his comments in the comment area. .
But from another perspective, we might as well regard the portfolio of companies selected by Collins as an investment index, such as the “Pretentiousness” index.
If investors buy this index with a sum of money, and the weight distribution of the index is an arithmetic average distribution, then from 1994 to the end of 2021, what will be the investment income of the Careful Index? It is about 75 times, and the annualized rate of return is 16.7%, which is still far beyond the average level of public fund managers.
It seems so—investors don’t have to speculate about the future, they can just focus on current company performance. Fund managers, on the other hand, are good enough to maintain an IQ of 70, and will do better.
