There have been many pullbacks in the stock market in the past two weeks, and with the continuous decline, there may be some good opportunities in the future. Let's talk about the choices of enterprises today.

01 business model is the most important

For the choice of enterprises, the business model is the top priority, if the business model is good enough, even if you inadvertently buy more expensive, but also because of the continuous growth of the enterprise, through the performance to smooth out the defects of the valuation.

Take Tencent as an example, even if it is bought by Tencent with an 18-year high of 470 yuan, it will be the highest share price in the short term. Although it does not make much profit in the long run, it can still become a profitable investment.

So what kind of business model is a good one?

• First, there is a moat.

In reality, we must have seen this situation, once a store's business is booming, similar stores will gradually increase, because the participants continue to increase, compete with each other, drive down prices, and eventually turn this excellent business into a mediocre business.

So no matter how good the business model is, it can only be a flash in the pan without the ability to stop new entrants.

Business with a moat is not necessarily a good business, but business without a moat is bound to become bad.

In short, this enterprise must have at least one advantage, so that even if others are jealous and jealous, it is impossible to imitate his business easily.

• Second, you really understand.

The premise of choosing a business model is that you really understand it, not just because others are optimistic, because no one's opinion will be right.

In the long investment career, it is impossible for us to patiently accompany the growth of the enterprise because of the optimism of others. Especially after the pullback in the last two weeks, I think many friends can feel this way more. When it goes up, it's okay, when it goes down, it's not easy to hold it patiently because of the bullish words of others.

Buffett said that I only do business that I can read and understand. Starting from whether I can understand it, 90% of the companies alone have been filtered out.

• Third, the industry is simple and has few changes.

In an industry that changes frequently, the leader is easy to be overtaken by others. In other words, you may have built a broad moat, but because the industry is changing so fast, newcomers may not want to defeat you by entering the castle at all, but to build a city to replace you elsewhere.

• Fourth, high ROE

The same assets create higher value.

About whether ROE or ROIC,ROE is the return on equity, ROIC is the return on investment. Black and white point of view is that the same industry can see ROIC, cross-industry I see more ROE. Because the business models of different industries are different, some business models have lower debt ratio, and some business models have higher debt ratio, so we can't simply distinguish the good from the bad because of the high or low ROIC.

• Fifth, the net profit is all real gold and silver.

In the eyes of black and white, this is the top priority, the essence of the enterprise is to make money, say 1000 to 10,000, can really earn real money is a good enterprise.
As far as investment is concerned, although the listing of an enterprise facilitates our transaction, we should not regard the enterprise as a gambling chip, the listed company as a non-listed company, and a long-term investment as our own business. at this time, what kind of enterprise you choose will naturally become simple.

In his letter to shareholders, Buffett has such a model definition of a good company, which is defined as a company that can generate a lot of cash.

• Sixth, there is no need for sustained high investment.

If you make money and need constant investment, such as research and development, plant expansion and so on, it is not a good business.

Quote Buffett's letter to shareholders:

A really great business can not only make huge gains from tangible assets, but also do not have to reinvest a large portion of the proceeds internally in any duration to maintain its original high rate of return.

• Seventh, it is expected that it will be difficult to get worse in the future.

At least as far as we can think about, the demand for this business is still strong, and it is very difficult for us to find a good company in the sunset industry.
Teacher Duan Yongping's definition of a good business model is to look for enterprises with long slopes and thick snow. Such enterprises not only have thick snow in front of them to expand themselves, but also have long slopes in the future to make this sustainable.

If a company meets the above seven rules, the high probability business model will be very good.

Of course, it doesn't mean that other companies are necessarily rubbish.

We must admit that there is no simple uniform standard for the business model, and if everyone agrees on the business model, it is impossible for anyone to invest in businesses that are not good in your eyes.

In fact, the judgment of the business model, to put it bluntly, is to understand why the enterprise makes money, whose money it earns, and how long it can earn. This is not to say that enterprises that do not meet the above seven provisions are necessarily bad enterprises, but enterprises that meet the above options are basically easier to judge their business models, and our investment success rate is higher.

Give up other types of enterprises, because my personal ability is limited, can not earn beyond the ability of money.

My purpose of choosing the business model is: do not challenge the difficulty, the principal safety first, make long-term money.

02 when to buy

The anchor of our valuation is the risk-free rate of return, generally speaking, according to the yield of short-term treasury bonds, or the fixed financial income of the bank.

The significance of this valuation anchor is that these two returns are almost risk-free and can be obtained effortlessly.

If we invest in a company in the stock market, take more risks and waste more energy, but the potential return is lower than the fixed income that can be obtained effortlessly, it is obviously not worth it. Or something you shouldn't do.

Today's data the one-year Treasury yield is 2.6% and the ten-year yield is 3.25%.

We compromise at a risk-free rate of return of 3 per cent, which is 33PE (112.3 per cent).

To put it bluntly, the so-called investment is to find a pool where our money can be stored.

The return of our money at home is zero, the interest on bank deposits is about 1.5%, and the purchase of long-term treasury bonds is 3%. Because of the unstable pricing of the stock market, there are often opportunities for higher returns than the above, so we hope to put our money into the stock market. in order to get a higher return than the above investment target.

If we buy too much in the stock market, the final return may not be as high as the risk-free rate of return, so we need to find a reasonable buying price, that is, to value the company.

How should stocks be valued? Let's first look at two characteristics of stock market valuation.

• 1. Compared with the above returns, the stock market is risky.

We take more risks, spend more energy, and should have higher returns on the stock market.

For example, you feel that you are taking more risks, at least 50% higher than the rate of return on fixed financial management. So that's a 4.5% yield, corresponding to 22PE. If you have a lower risk appetite and think it is reasonable to double the cost of fixed financial management, it is a 6% yield, corresponding to 16PE.

What is the specific value of this?

In addition to their own risk preference, it should also be combined with the enterprise itself.

Some enterprises have very good cash flow, they have a wide moat, and their future life is long enough, such as liquor, I will give him 25~30PE. Because a very good enterprise, want to wait for an extremely cheap price is more difficult, and excellent enterprises with their own performance growth enough to smooth out the defect of buying a little expensive.

But there are some companies, such as Hanlan in black and white positions, whose reasonable valuation I give him is slightly lower, 15~20PE.

Although the business as a whole is good, it has some defects, such as the price will be subject to certain control and the investment in the early stage of expansion is relatively large.
There is a slight flaw in the business, which means that it is potentially more risky, and we need to increase the return on this asset, so the reasonable valuation of him will be lower.

For example, some businesses, products are not differentiated, such products obviously you can not get too high profiteering, such an enterprise I will give him a lower valuation, such as cement.

• two。 The performance of the enterprise is changing.

Black and white has met some new investors to ask questions, simply the static PE as the anchor of valuation, this is definitely wrong.

For example, an enterprise, the current 40PE, but it itself is a high growth, the second year's performance increased by 50%, that is, 26PE, if this high growth can be sustained, the current 40PE is even extremely cheap.

For example, another company, 20PE, looks cheap, but it is in a sunset industry, and its performance fell by 50% the following year, which became 40PE. It's also expensive.

Therefore, in the matter of valuation, it is impossible for us to escape the judgment of the enterprise's business model.

After reading the above two points, some friends may have some circles, which is why most books seem to understand, but do not know how to do it. Because books are flawless, there are no loopholes in theory. In practice, I feel that there is no way to start.

Let's talk about the simplified valuation method in black and white.

First of all, we understand that if you also invest 10,000 yuan and earn 300 yuan from fixed financial management and 300 yuan from the stock market, there is no difference in value to us. It is not because you earn 300 yuan from the stock market that people will give you two or two more when you buy meat.

Therefore, although the stock market is irrational in the short term, the pricing of long-term stock market assets can not get rid of the anchor of risk-free return.

In other words, from a value point of view, an enterprise rationally takes into account the part of future growth, the valuation is still higher than the risk-free rate of return, it is not worth our investment. Don't try to make emotional money.

In terms of valuation, there is Buffett's concept of discounted cash flow. To put it simply, the value of an enterprise is the discounted value of cash flow generated during the duration of the enterprise.

However, we see that it is impossible for an enterprise to accurately judge the changes of the enterprise in 10 or 20 years' time. Lao Ba himself has said that this is only a way of valuation, and he will not really calculate it himself.

Short-term market pricing is easily influenced by emotion, and it is too long for us to make an accurate judgment for 5 years or 10 years.

Because the time is too short and meaningless, the time is too long to see the factorsThe choice of black and white is to carry out dynamic evaluation every 3-4 years as an observation cycle from the point of view of actual combat.

Total market capitalization = net profit X price-to-earnings ratio.

If we take three years as an observation period, then the formula is very simple. The market capitalization of the enterprise after three years is equal to the reasonable price-to-earnings ratio of net profit X after three years.

Market value of the enterprise after 3 years / current market value = our potential rate of return for 3 years

How much to buy depends on your earnings expectations. For example, if you expect 100% of your earnings for 3 years, half of the estimated market capitalization after 3 years will be your buying point.

Black and white choice: the market will not always give us the opportunity to pick up bargains, so black and white usually start to build positions in batches with 60% of the potential income in 3 years. How cheap the market is and how many positions are allocated.

Two variables in this formula:

• Value of PE:

As we have mentioned above, taking the risk-free rate of return of 3% as an example, it is 33PE. Stock investment because we take more risk and pay more energy, so we ask for a higher rate of return. At a yield of 4 to 6 per cent, it corresponds to 16~25PE.

In this value, I will according to the characteristics of the enterprise, the lower the investment risk of this enterprise, the better the cash flow earned, the higher the value of PE.

The company as a whole is good, but with a few flaws, the value of PE will be lower.

• Future performance:

This is the more difficult part, the same business, different people have different views, give different future performance. This is the source of risk in our investment, because our judgment of the business model is not always correct.

The only way to improve the winning rate in this respect is to read more and think more. If our cognition matches, the judgment of the business model will naturally be accurate.

Finally, considering that our judgment of the business model can not be completely accurate, under normal circumstances, when I calculate the market capitalization after three years, the growth and reasonable price-to-earnings ratio of the selected enterprises will deliberately be lower. Or you can make a normal calculation and give a 10% discount to the market value three years later.

Finally, again, valuation is a vague thing, we cannot be completely accurate, do not regard it as an accurate mathematical calculation, so do not insist that 200 billion is cheap, 210 billion is expensive, or 380 billion is expensive, 370 billion is cheap, cheap and expensive are gradual processes, so my personal choice is to buy and sell in batches many times, and the market allocates different positions for different prices.

Secondly, our judgment on the business model is not always correct, so I suggest that it should be appropriately dispersed. If your level is 80 points and you choose five enterprises, chances are that your ability will reflect your 80 points. If your level is 80 points, if you choose an enterprise, it is entirely possible to meet a black swan because of bad luck and be forced to leave without showing your true level.