Gao Yi Asset Qiu Guolu: Change and Unchanging in Investment

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Chairman of Gao Yi Assets Qiu Guolu

Today, I am attending the China Institutional Investor Summit and the International Forum on Wealth Management for the third time. Now that there are some very high-quality stocks that are ups and downs, what is the real driving force behind them?

It can be said that the driving force of the market is changing every day. The only constant in the capital market is the change itself. How do we view changes in the market? In my opinion, the most important thing is to see the sustainability of these changes, such as whether it is a long-term change or a temporary change?

Many people have recently mentioned the spring of value investing, perhaps it is sustainable. We often want to buy some good quality companies, but we hope to buy them cheaply. When should I buy it? It's very simple, you have to buy when a high-quality company encounters short-term difficulties. Typically, the best performance in the past year or two is the two industries of liquor and home appliances. In 2013 and 2014, liquor encountered eight regulations, and both the fundamentals and the stock price encountered great adjustments, but we can see The business model, brand, status in the user's mind, and the role of the Chinese social catalyst have not changed. When the special business period faces market doubts, it is actually that high-quality enterprises have encountered short-term difficulties.

How can we be changed in the face of change? I think it is still based on an in-depth study of fundamentals, to truly understand the laws of the industry and the nature of things. In the face of many changes, the first question you often ask yourself should be: Is it a structural change or a cyclical change? With cyclical changes, corporate profits may double several times in the short-term. For example, in the process of soaring commodities, many companies have turned five times and ten times from small profits to profits, but it is only a short-term high. It is important to have a qualitative understanding of the nature of change.

Gao Yi’s assets are more concerned with long-term changes and looking for structural opportunities. In the past one or two years, cars have been one of the most bitter industries in all industries. Unlike Coca-Cola and Maotai, which have remained unchanged for decades and hundreds of years, a new product launched by a car may become an explosion, but it may also earn Two or three years of money, and then need to launch a new product, its competition in China is very intense. However, in the past one or two years, we have seen that there is a structural change that is the rise of self-owned brands. We buy 40% of the annual profit after 3 times of PE purchase, and this profit level is sustainable. This growth It is not cyclical and structural. When you look at the car at the Shanghai Auto Show, you will know that the competitiveness of Chinese cars is extremely fast with imported cars.

At present, self-owned brand cars are far ahead in terms of electronics. At present, SUVs under 150,000 yuan are basically the world of domestically produced vehicles. China's SUVs have grown by 50% in the past five years, and some domestic brands have a net profit margin of over 10%. This is why many overseas brands do not. Arrived. However, I would like to remind you that I am not recommending everyone to buy, because many stocks have doubled or tripled.

Another type of change we believe is sustainable is China's leader to become the world leader. China also has such structural opportunities in security. This change is sustainable, but we hope that it is unchanged. Why is it unchanged? I hope that its industry status is unchanged. The most important thing in investment is the first-mover advantage. In the short-term, it will not work after one or two years. We do not recommend this.

We always recommend looking for structural opportunities, such as consumer upgrades. For example, a company selling duck necks sells duck necks more expensive than anyone else, but sells better than anyone else, with a net profit margin of 20%, including the category of crayfish, which is 100 billion yuan a year in China. Market, how to standardize? Until an industry leader came out to solve the problem of standardization. You see that there are 36,000 McDonald's in the world, and three Chinese restaurants open in Shenzhen. The third one is not as good as the first one. How can it be copied? This is the most important issue for chain stores, which is to achieve quality control. Including recently we are researching custom furniture, how does it subvert traditional furniture? It solves the inventory problem, the custom furniture is zero inventory, the first order is made, and a board will be cut into many pieces by computer, which may be installed on different furniture, which greatly improves the efficiency of material use. The re-engineering of the industrial chain is a change in sustainability. Including custom clothing, tailor-made for you, one person eight cameras to scan, 10 seconds to complete tailoring, no longer divided into M, L, XL, etc., a clothing 2000 number, tailor-made. When making clothes, a huge cloth, a machine cutting at the same time, this is an industrial upgrade and consumption upgrade.

People always ask me: What do you like? In the past five years, I am optimistic about industrial upgrading and consumption upgrading. Consumption upgrading is the demand side, and industrial upgrading is the supply side. What industry is optimistic about? Three major industries: advanced manufacturing, brand consumption, and financial real estate. These three categories of industries have pricing power, the industry structure is very clear, and there is always an opportunity to determine whether it can achieve long-term development in the business model.

So many things to think about clearly, we will find that what we invest in is sustainable. Some changes in market structure are irreversible, and temporary and cyclical changes are reversible, so we are looking for such irreversible, structural, and sustainable changes.

There are currently several changes in the market:

First, the changes in the market environment, some very good companies have grown up, and there are investment targets. Second, there are a group of very mature investment managers with more than ten years of outstanding performance and long-term value investment philosophy. Third, the most important recent change is regulatory change. Many changes in supervision are guided by fostering value investment and long-term investment. In fact, this is the correct approach. Of course, there are some criticisms, but the big ones are correct. Two or three years ago, the entrepreneurial spirit of many entrepreneurs was destroyed by the bubble of the GEM. As long as the market value of a story is more than 50 billion, the very bad orientation guides those entrepreneurs who are already very entrepreneurial. Story, speculation concept. The fourth is customer-oriented change. Recently, we have received a lot of institutional investors' entrusted funds. This year, there has been a clear net increase in management scale growth, and this is far beyond our expectation when stock funds are very difficult to issue. A group of institutional clients and entrepreneurs are now beginning to agree with value investing. We all require a lock-up period for their entrusted funds. These large clients have a lock-up period of three years and five years, and the highest lock-up period is eight years. Without stable capital, there is no value investment in A shares, because some customers redeem after three months, and there is no way to create value for you without making money for him. But now a group of customers want to understand that participation in the short-term market is meaningless and willing to make long-term investments. Therefore, investment targets, regulators, managers, and customers are undergoing structural changes, which are beneficial to long-term investment, fundamental investment, and value investment. This is also a change.

So what is the same?

I am not very good at changing people. I am always in the field we are familiar with, but I found that the rate of return is not bad in a few years, mainly because the investment philosophy and methods have not changed. After summing up, there are four main points:

First, cheap is the last word, the margin of safety. The market has fallen from more than 5,000 points to 3,000 points. Why do many value stocks still make big money? The most important thing is that the valuation is cheap, because it is cheap enough to have enough margin of safety, especially when the market is fluctuating.

Second, we have been looking for industries with relatively clear industry patterns and relatively easy research. Investment is better than counting the moon, not counting the stars. You can't count the stars, but there is only one moon. The so-called "moon" refers to the enterprise that laughs at the end after fierce market competition and industry shuffling in the industry with high threshold, which is the oligarch that everyone often says. The "stars" are in the industries with low industry thresholds and low concentration, and there are many different enterprises. Doing a good job of investing is looking for the best companies in the industry with the highest threshold.

Third, the business model and industry attributes are thoroughly studied, and there must be an insight into the industry. You must understand the source of pricing power. In most industries, it is a winner-take-all game. For example, home appliances are a very bitter industry. Why can two faucets achieve double-digit profit margins? Quite simply, although home appliances are manufacturing, they have formed a pattern of oligopoly after fierce market competition. Therefore, these two leaders have pricing power similar to consumer goods.

The fourth is reverse thinking and independent thinking. A-shares always come up with various hot spots from time to time, but it is often difficult to get satisfactory returns in pursuit of market hotspots. Investment opportunities often appear in the corner of the market. It is necessary to distinguish between the changes and the constants. The core principles are constantly changing, and there are irreversible structural changes. We should participate in this, and at the early stage, we know who the winner of this change is. Winners in the industry where the winners and losers have been divided, pay attention to the margin of safety, hold for a long time, hold with the company, and earn money for growth.

(China Fund News reporter Jing Jing finishing)

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