This article comes from the WeChat official account: point pick investment (ID: deepinsightapp) , author: heroes fund managers, title figure from: vision China
Introduction: Penghua Fund ’s Yuan Hang showed a clear value-based investment style in the interview. The operation cycle of the representative products he managed has exceeded five years. long. In Yuan Hang ’s investment worldview, stocks are a proof of ownership, not a bargaining chip. The long-term value is determined by its long-term operating return ability, not by the supply and demand of short-term funds. He gave a very subtle example. Think of the stock as a cow that keeps producing milk every year, not a glass of still milk.
Yuan Hang ’s investment framework combines value growth and deep value companies, preferring companies with better texture, stronger competitiveness, and long-term internal returns. He does not use consumer stocks and cyclical stocks in the industry to distinguish between companies. The core is to see the nature of the investment: whether it is undervalued and can bring operating returns to shareholders. In our interview, Yuan Hang also made an in-depth explanation of the large manufacturing stocks he captured, and we also saw how he made value investment from another perspective.
Let ’s share some investment “golden sentences” from Yuan Hang first:
1. Characteristics of ownershipSee, the operating returns that stocks bring to investors come from the creation of long-term cash flow.
2. Assets such as stocks should be regarded as a cow rather than a glass of milk. The value of a cow is closely related to its output.
3. From the perspective of a large category of assets, I divide assets into two major categories: “interest-earning assets” and “non-interest-earning assets”.
4. Value growth and deep value belong to my most important investment category.
5. Many people will pay attention to the track where the company is located, whether the market space is large enough. I am more concerned about whether the company itself is competitive enough to increase its market share.
6. Looking at the company ’s annual report, some of the numbers are like musical notes. When these notes are connected in series, there is a melody, through which you can feel the company ’s operating status and competitiveness.
7. Investment should minimize losses and shield the downward risks in the portfolio, and the upward gains often come out naturally.
Stocks are cows instead of milk
Zhu Ang: Can you talk about how you view investment?
Yuan Hang : The formation of the investment portfolio is based on the investment method. The investment method is derived from the judgment of some things, and these judgments come from the understanding of the objective world. What guides us to invest is everyone’s different investment worldview. Before investing in stocks, first answer the question of how to view stocks.
Stocks are a better arrangement of property rights. Investors jointly bear the uncertainty in the operation of the enterprise and share the benefits brought by the operation of the enterprise. The first attribute of stocks is the ownership certificate issued by the joint stock company. Shareholders have the right to participate in decision-making, profit distribution and residual asset distribution according to law. The price of stocks is closely related to the value of ownership in the medium and long term. At the same time, the stock has the second attribute, it is a marketable security that can be traded in the market, so the price will be affected by the supply and demand of funds in the short term.
The company’s operations are uncertain. After the completion of the stock issuance, the company’s operations will gradually diverge. The upward uncertainty evolves into investment opportunities, and the downward uncertainty evolves into investment risks. Investment stocks should be more fully exposed to upward uncertainty, while avoiding huge downward uncertainty as much as possible.
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Through fundamental research, we select high-quality enterprises with outstanding competitiveness to obtain operational uncertainty. From the characteristics of ownership, the operating return that stocks bring to investors comes from the creation of long-term cash flow. Different companies have different capabilities to create operating returns. Assets and other assets should be regarded as a cow rather than a glass of milk. The value of a cow is closely related to its output. In some pastures, the annual output of dairy cows is more than 11 tons, and in some pastures, the annual output of dairy cows is between 7 and 8 tons. The operating returns of the two are different, and the intrinsic value is also different. Raw milk is a commodity, and the short-term price is determined by supply and demand.
I think there are four ways to make money in investing in stocks :
(1) Relying on the endogenous growth of the enterprise to realize the increase in the value of ownership . Ownership appreciation is a very important way to promote the intrinsic value of stocks, which is why the market favors growth. Since the company’s profit will be affected by many factors such as accounting assumptions, it cannot fully objectively reflect a company’s profit quality. I will analyze the true return of a company from other perspectives such as free cash flow.
(2 ) Buying discounted stocks, the valuation is in a discount process due to external environmental impact or market sentiment impact . When the staged difficult environment has passed, the company’s operating conditions and valuation levels have returned to normal, and the repair of valuation discounts is also a major way to obtain profits.
(3) Buy a stock, and then wait for other market participants to be willing to use a higher valuation multiplier to buy the stock you hold . This will be affected by the relationship between capital supply and demand and sentiment, which is difficult to grasp from a fundamental perspective.
(4) There are also some scattered ways to obtain individual stock returns, which have not become the mainstream in the market. For example, active shareholderism, after investors buy enough shares in listed companies, they can help companies improve operational efficiency, solve existing problems, and unlock shareholder value through the right to speak in the company. There is also a kind of A-share market that has been deduced more in the early years, that is, asset reorganization. At the current stage of new share issuance and expansion, a large number of companies can land on the capital market through IPO, and the opportunity of stock assets “Wuji becomes Phoenix” becomes rare .
I mainly use the first method and the second method to achieve individual stock returns.
Zhu Ang: In your investment worldview, you citedA very interesting metaphor, the stock is cows instead of milk, can this be discussed?
Yuan Hang : Cows can continue to produce milk, so the value of this cow is closely related to its milk production. In contrast, raw milk is a standardized commodity whose price is determined by supply and demand, similar to short-term fluctuations in stocks.
From the perspective of a large class of assets, I simply divide basic assets into two categories: “interest-earning assets” and “non-interest-earning assets.” Interest-earning assets are assets that can generate operating cash flow, including real estate, bonds, stocks, etc. are all interest-earning assets. Non-interest-earning assets are assets that cannot generate operating cash flow, including gold, crude oil, iron ore, etc.
One of the core factors affecting the price of interest-earning assets is the operating return corresponding to ownership. Stocks are risky assets, but they also provide returns. Understanding this, our core focus on individual stocks is the operating return corresponding to ownership.
In the investment process, I value cash flow very much. When I was a researcher, I discovered that many companies had problems, not because of profits, but because of cash flow problems. Cash flow is the lifeline of business operations. No matter how innovative the business model is, the ultimate core goal is to obtain sufficient cash flow and bring returns to shareholders and the company. If the current or forward cash flow cannot be generated, the long-term operation of the enterprise will be challenged. In terms of investment, I like to find companies with rapid growth in free cash flow, which shows that the initial investment has begun to produce returns.
Combining value growth and deep value
Zhu Ang: Combining the four investment methods you mentioned earlier, can you understand that your investment framework is a combination of deep value and value growth?
Yuan Hang : Yes, Value growth and deep value belong to my main investment category . My stock selection is biased towards high-quality companies with sustained growth and deep value companies with significant discounts. According to the latest publicly disclosed position, 80% of the portfolio is CUHK’s market capitalization companies, and 60% are value-growth companies.
Zhu Ang: Regarding deep value investment, it is actually difficult to unlock value in China, as you said, HaiWith active shareholderism outside, it is difficult for China to influence management, so how do you better integrate deep value strategies with the characteristics of the Chinese market?
Yuan Hang I think to understand why the market is willing to give such a low valuation, what is the reason behind it? Low Valuation certainly implies worries about fundamentals, then we have to judge which of our understanding and market worries are the truth, and whether this worries hold in the medium and long term. This requires very in-depth fundamental research and a deep understanding of positions. Only when concerns in the market have not become a reality can such investments benefit. Conversely, if market concerns become a reality, then deep-value stocks may become value-destroying stocks.
We give an example. In 2015 and 2016, the market was very worried about Hong Kong stocks. Some companies hoarded a lot of land, high inventory, high cash flow pressure, and high net debt ratio. This part of the company’s operating assumptions face great risks, and the market has also given a very low valuation level. However, with the promotion of the destocking policy and the relaxation of monetary policy, there was a very obvious inflection point change in the entire real estate industry in 2017-19. . The rise in house prices and land prices has caused a significant revaluation of the asset value of real estate stocks and also eliminated the fear of market participants. In this case, the emergence of an inflection point catalyst allowed deep value stocks to be recognized by the market.
Explore good companies with low valuation and high returns
Zhu Ang: What type of company do you like in stock selection?
Yuan Hang : The first is an enterprise with outstanding competitive advantage. I think Enterprises are like ships traveling in a counter current, either forward or pushed back by the current, and are rarely in a stationary intermediate state. Enterprises with very outstanding competitiveness actually prevent a very large downward uncertainty. What is downward uncertainty? It is a very big potential risk for enterprises to be marginalized and eliminated in market competition. Some companies may face a cyclical market. This year the market will go down a bit, and next year the market will go up a bit, but if the competitiveness is strong, the market share will not be lost. The outstanding competitive advantage can guarantee the return to shareholders in a longer-term dimension. Brands, costs, channels, patents, etc. are all company competitionsSpecific embodiment of advantages. Many people will pay attention to the track where the company is located. Is the market space large enough? I am more concerned about whether the company itself is competitive enough to increase its market share.
Second, companies with growth prospects. The company’s performance growth should be of high quality, capable of generating abundant free cash flow and thickening shareholders’ equity. The company’s performance trend should be upward, or not far away from the upward performance trend.
The third is an enterprise with a margin of safety. The company has a reasonable or low valuation level, and is generally cautious and restrained about the valuation of bubbles and the hype of short-term themes.
When grasping the investment opportunities of low-value companies, we look at the value of the company from the calculation method. If the implied return rate of holding this company is relatively high and the margin of safety is sufficient, then we can be very practical. Always hold. I also pay more attention to avoiding downward uncertainty and controlling risks. By calculating the company’s intrinsic value through accounting, you can better grasp the safety margin of investment.
Zhu Ang: You are a very different value investor. Many value investors are reluctant to buy cyclical stocks. Can you talk about how you view the value of these companies?
Yuan Hang : Munger once said that value investment is to get more than you pay. Every smart investment is a value investment because its intrinsic value exceeds The price you paid.
Value investment should not be labeled. There are stable profit centers in cyclical stocks and technology stocks, and there are huge fluctuations in profit in consumer products. I think that if the company is only pre-divided according to the types of periodic stocks, consumer stocks, and technology stocks in investment, the conclusion will often be plausible. I will judge the company from the essence of value investment. First, can this company create substantial operating returns for shareholders in the future; second, is the company ’s valuation reasonably low. In my framework, the worst choices are companies with high valuations and weak returns to investors.
We look at the US stock market, companies like Cummins that make engines, and companies like Paccar, which produce heavy trucks, also have rich operating returns for investors in the medium and long term because of strong product strength and high barriers to competition In addition, engineering equipment will continue to be used in economic activities, and it needs to be updated every few years. The stocks of these companies have made significant increases in history.
My division of stocks is based on value growth and in-depth value differentiation within the investment framework, not that it focuses on cycle, consumption or technology.
Zhu Ang: You like companies with strong competitiveness, but I see that your portfolio is not all white horses. For example, in the pharmaceutical industry, I see that you have held a pharmaceutical glass company for a long time. It has increased many times. Can you talk about the logic at that time?
Yuan Hang : I will pay attention to some invisible champions in subdivided fields. Maybe they are not so familiar before. The competitiveness of this company is very prominent. In some subdivided areas, the company’s product scale is the largest, the market share is far ahead, the cost is at the lowest end of the industry, and the relationship with customers is also very close. Enterprises are basically his customers. At the same time, the upgrading of pharmaceutical packaging materials is also a general trend, and the company can also enjoy the dividend of product structure optimization under the policy promotion. Judging from the fundamental characteristics, this is a very attractive company for me.
We then went to investigate the company ’s downstream customers and found that they had a high degree of recognition for this company and did not exclude small price increases. The important reason for this is that the company’s products account for a very low proportion of the production costs of pharmaceutical companies. At the same time, the company has obtained a very high market share in the early stage and has a strong say in the pricing of some varieties.
In addition, the company’s management is also more aggressive, pioneering new products, controlling costs, improving layout, and research and development processes, and the interest orientation is consistent with ordinary shareholders.
Looking at this company’s ability to create returns, the company’s free cash flow has always been very abundant, and capital expenditures have been kept within a reasonable level. When I bought it at that time, the valuation was only about 19 times, and the company’s non-net profit deduction maintained a performance growth of more than 30% for more than two consecutive years. In the end we got a very generous return from this company’s investment.
Zhu Ang: Talking about portfolio construction, I found that your portfolio is still relatively rich, and the industry distribution is relatively scattered?
Yuan Hang : I am relatively balanced in portfolio construction, which is also related to my research experience. When I first entered the Penghua Fund, I studied manufacturing. During his time as an assistant investment manager, he focused on the sectors of food and beverage, new energy vehicles, and consumer electronics. The investment targets of past research reserves are distributed in multiple fields, not just in one field.
I have followed many companies in the portfolio for a long time, and some of them have watched for 10 years and have witnessed the changes and development of the company. The benefits these companies bring me today are also due to long-term research and tracking.
I will not put the position in a rowIn the industry, there will always be some unexpected major events in the world. No matter how complete the analysis is, there is no guarantee that there will not be a black swan event. Therefore, in investment, it will control the proportion of the largest position in a single industry. In terms of individual stocks, positions are relatively concentrated, and the number of shares in the portfolio is not so large. The companies selected in each industry have outstanding competitiveness. In terms of portfolio, I will invest in three major areas: advanced manufacturing, large consumption, and large finance. These areas can find stocks that meet my stock selection criteria, which is also in line with my research ability circle.
See the melody behind the notes
Zhu Ang: What do you think is the source of Alpha?
Yuan Hang : I feel that adherence to independence and objectivity, and correct judgment, are very important reasons for maintaining excess returns in the medium and long term. Stocks have dual attributes, both ownership attributes and commodity attributes affected by supply and demand. The investment behavior of some market participants will be affected and threatened by short-term factors. For me, to grasp the mid-to-long term value of a company from the perspective of stock origin, the winning rate will be higher. Many high-yielding stocks in my portfolio have faced divergences and retracements in the course of their rise. If they do not make independent and correct judgments during disagreements and retracements, if they dare not stick to their own views, the excess of the portfolio Earnings will be greatly reduced.
The investment of Alpha takes time to manifest. In a short period of time, the proportion of luck will be very large. Using a more extreme example, suppose looking at the return rate of a day or two, the stocks chosen by professionals may not be better than Octopus Paul. However, if the long-term dimension is extended, any imprudent investment may cause a huge loss to the portfolio. No matter how high the historical rate of return is, a zero reset will wipe out all the returns. Long-term excess returns come from high-margin investment methods and risk control.
Zhu Ang: You have your own deep understanding in the field of manufacturing. What do you think are your unique advantages?
Yuan Hang : Many companies wo n’t feel too much if they look at it twice or twice, but after following these companies for many years and analyzing and understanding the companies in depth, you can feel some subtle Variety. Looking at the company’s annual report, some of the numbers are like musical notes. When these notes are connected in series, there is a melody. Through the melody, you can feel the company’s operating status and competitiveness and judge the company’s future development trend.
I started researching the manufacturing industry in 2009. I have studied many types of manufacturing companies. Steel and cement are traditional basic raw material enterprises. Automobiles and home appliances are manufacturing industries related to consumer consumption. Food and beverage and medical equipment are actually It also belongs to the category of manufacturing. By comparing different business models, you can get a clearer understanding of the company and judge the company, thereby digging out gold mines in the manufacturing sector.
In addition, I pay more attention to comprehensively and objectively grasp information. In addition to investigating listed companies, I will also conduct further research on upstream and downstream and industry competitors, so as to fully grasp the operation of listed companies and improve the accuracy of judgment . The correct judgment on the competitiveness and development situation of enterprises is an important guarantee for gaining profits in the field of manufacturing.
The last point I have always emphasized is that I am more awed by the risk. Enterprises operate in an uncertain environment and face a variety of risks. In the construction of portfolios, special consideration will be given to avoiding the downward uncertainty of business trends. At the same time, I will also treat some data changes objectively and adjust my judgments and assumptions in time.
Zhu Ang: Are there any mutations or leaps in your growing up?
Yuan Hang : It is difficult to say a certain mutation, I think it is a process of gradual accumulation and continuous strengthening. I started as a researcher in 2009, and I still have 11 years. Throughout the years, the habit of reading company financial reports, investigating and obtaining information, and reading various books has been maintained. The family once asked me, would it feel monotonous? I do n’t think it ’s monotonous at all. I will put this information together and analyze it. If I can make a correct judgment on the company, this is a very satisfying thing. It is a pleasant thing to make an investment layout based on correct fundamental judgments and create a return on the investment portfolio.
In the long-term research investment, I have discovered many risks caused by downward uncertainty, which may cause irreversible losses to the portfolio. The downward risks in the portfolio are shielded, and the upward returns often come out naturally. Therefore, I also pay more attention to avoiding downward uncertainty in investment. This concept is also formed over the years.
This article comes from the WeChat public account: Dianshi Investment (ID: deepinsightapp) , author: fund managers heroes