To do a good job in value investing, you need to understand some basic business common sense. China's capital market has a characteristic that is very different from mature markets such as Europe and the United States: many small and medium-sized investors, and even many public a

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To make a good value investment, you need to understand some basic business common sense. For fundamental qualitative analysis, you can master some underlying analysis frameworks to make your logic stronger.

Common sense ① Big is better than small

China's capital market has a characteristic that is very different from mature markets such as Europe and the United States: many small and medium investors, and even many public and private equity fund managers, are keen on the hype of GEM and small and medium-sized boards. As a result, the stock valuations of GEM and small and medium-sized boards are much higher than those of blue-chip stocks.

There are probably two main reasons: ① The company’s share capital and market capitalization are small, and it requires less funds for speculation and is easy to operate; ② Many people believe that the smaller the company, the greater the room for growth and the faster the growth rate.

"Financial Model" - Ren Zeping

The first reason is purely a matter of stock speculation and speculation, not an issue that needs to be discussed in value investment. The second reason is that for value investing, large companies are better than small companies when it comes to company size selection. The main reason is:

① Less risk

Large companies all develop from small companies. A company starts, develops, and grows, and eventually grows into a large company with sales of tens of billions and tens of thousands of employees. This There are countless risks and setbacks to be experienced during this period.

Every step a company takes is a process of "transformation". During this period, countless companies must have fallen on the road to growth or stagnated. People often only see the final successful Alibaba , JD.com , Tencent , but do not see the large number of Internet e-commerce platforms that have closed down. Therefore, the operating risks and investment risks of small companies are far greater than those of large companies.

② Scale effect and more resources

In competition with small listed companies in the same industry, large listed companies can gain greater competitive advantages due to their scale effect. In the past operations, we have also accumulated more resources such as brands, channels, customers and R&D results, making it easier to obtain external support, such as bank loans, government support, etc.

③ Stronger capabilities

The process of a company growing into a large company is also a process of continuous improvement of employees, teams, and management processes, and continuous strengthening of culture and organizational capabilities. Large companies often have more complete management mechanisms and systems, and the company's organizational capabilities also have Greater sustainability.

④ Growth space has nothing to do with the size of the company

Growth space depends on the industry in which the company competes, the size of the market segment, economic characteristics and growth, and has nothing to do with the size of the company.

Common sense ② Light weight is good

Many companies in China like to pursue scale to demonstrate the company's strength. In fact, for value investment, when it comes to choosing a company's business model, it is better to choose the asset-light type than the -heavy asset type.

The more assets a company needs to invest in its operations, the more capital it will occupy. Whether it is fixed assets, accounts receivable, inventory and other operating assets, the company's asset turnover rate and return on capital will decrease. .

Therefore, many well-known multinational companies are pursuing the "light asset" operating model. For example, Pepsi and Coca-Cola outsource their bottling plants; Nike, ZARA, Apple and other companies outsource their production links, and the company only focuses on Commercial operations of core functions such as branding and marketing.

"A Brief History of Business" - Liu Run

Common sense ③ Cash is king

Making money is the last word. For shareholders, the only purpose of the existence of listed companies is to make profits. Any business model or concept that does not make money is unsustainable. It could all be a "Ponzi scheme".

For value investing, it is not enough for the company to just make money. Value investing also needs to see whether the money earned is real money and real cash. If the company only makes money on its books, it actually receives a large number of IOUs, resulting in an increase in accounts receivable.

The last words

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