Faced with the vast and boundless uncertainty, that is, infinite data and variables, the individual's coping ability is very mismatched, and there is almost no chance of winning against the risk.

Author: Archimedes Biotech

Investors like to quote Nietzsche's words: "Those who can't kill me will definitely make me stronger." Then they were killed as soon as they came on the court. Faced with the vast and boundless uncertainty, that is, infinite data and variables, the individual's coping ability is very mismatched, and there is almost no chance of winning against the risk.

The environment is born from the heart and is established in the stock market. Many people who are decent in reality live a humble life in the market. They believe in dealers and harvesting, so the law of the jungle is real, and they will meet dealers and harvesting every day. He considered himself a strong man, chose a difficult road, and then ended up being vulgar.

Is there a road that can bypass these jungles, or is this road that is straight and wide, and the years are quiet.

Investment is the monetization of cognition. The most famous sentence in "The Art of War" is "know yourself and your enemy, and you will never be defeated in a hundred battles", which refers to cognitive issues.

First of all, I need to know that I am a weak person, external risks cannot be overcome, and my own weaknesses cannot be overcome. Don’t expect to rely on subjective efforts to achieve investment success.

Subtraction based on the weak thinking.

I can build a closed path to block external risks and isolate my own weaknesses. Determinism and stylization minimize subjectivity and minimize the probability of errors. Risks and weaknesses still exist, but they cannot be exposed.

The first thing to do is to choose track . "I have seen miracles that humans cannot imagine. Yunnan Copper Industry has gone from 9 yuan to 90 yuan, and then from 90 yuan to 9 yuan, and all the past will disappear in time, like tears disappearing in the rain... The time of death has arrived!" Cycling stocks are riding a roller coaster, cigarette butt stocks are dull and long, and technology stocks are too fast. "If I knew where I would die, I would never go to that place." In an era of rapid iteration, in a few years, some industries may disappear as a whole, and biomedicine is sustainable. Although it has technological attributes, leading companies will exist for a long time. It is now a consensus that the excellence of the biomedical track is, so I won’t talk about it much.

The second thing is to choose stock . Hillhouse Zhang Lei said a moving sentence from , "Please choose who to walk with is more important than the end." At the beginning of biomedical investment, I will prepare for each stock for at least one year. During the first stock market crash in 2015, I began to observe Hengrui Medicine . Qian stocks hit the limit, and Hengrui also fell sharply at the beginning, but soon stopped following. At that time, I had a very shallow understanding of biomedicine, but based on economic principles, the price included most of the information. Later, I analyzed the R&D pipeline, management team, business capabilities, and financial data, and noticed that Hengrui had not raised a penny from the market since its listing. This was until early 2017, and I could no longer wait. In mid-2017, they successively bought China Biopharmaceuticals and Shi Pharmaceutical Group . WuXi Biologics didn't buy html at 540 yuan, so I kept waiting and watching because I didn't understand the valuation and moat very much. Until two and a half years later, I finally figured it out and bought it around 100 yuan, and it didn't feel too late. Choose the strongest stocks in the industry and rely on the strong, this is the survival logic of the weak. Instead of relying on individual subjective efforts to achieve excess returns in the face of risks, it is better to let these strong stocks smooth out the volatility and outperform the index.

The third thing is to choose habit . As mentioned earlier, I can’t completely isolate my own weaknesses, and it doesn’t mean that it will be calm if you choose good stocks. Perhaps it was because when I was doing graded A, I was more sensitive to the price difference of a few cents. I had the habit of intraday trading and I could not help but make T, selling high and buying low, and reducing the cost of holding positions. However, they are doomed to fail. If you do it right 9 times, you will lose all the money if you do it wrong 1 time. Except for , Hengrui Medicine, , who dared not move, almost all the stocks held were bought and flew away. Sometimes, they would sell them without thinking about it, and then they were forced to chase high prices and buy them back. The bad habits were deeply rooted in the bone marrow. So, all my worries that have come for a long time come from stock rises. This trading habit was not completely quit until a few months ago. Later, it was stipulated that I could only do a regular T-sell, buy low and sell high. However, it is necessary to be very cautious to increase my position in Hong Kong stocks. At the end of 2018, I almost dragged me into the bottomless abyss. I have also experienced impulse when I selected stocks. I bought two or three stocks if I were not prepared enough, and then stopped losing and left the market quickly.Therefore, the best habit is that most things cannot be done.

"Win first and then seek battle", successful investors have set their own boundaries and paths, some people only make convertible bonds, active funds, or discounted funds, or ETFs.

The valuation and selection logic of innovative drugs

After the track and habits are selected, there will be no change. The only thing left to do is to select stocks. Now let’s talk about our understanding of biomedical stocks.

If more than 95% of A-shares are garbage, there may be no objection, and the same is true in the biopharmaceutical industry. Even though all biomedicine has risen to bubble since 2019, this view is still adhered to. When a sector rises in an overall undifferentiated manner, the rise of mediocre stocks comes from β. For a long time, it will still return to dust and soil. Investors should stay awake and think about a classic question: Is all this ability or luck? Has personal stock selection ability falsified?

Investing in pharmaceutical stocks is not very helpful to see PE and PB. It should be measured from three aspects: R&D pipeline, cash flow, and business capabilities.

borrowed the concept of "impossible triangle" here, not to be mutually exclusive, but it is difficult to have both of the three. Most biopharmaceutical companies cannot achieve strong R&D, good cash flow, and high commercial conversion rate at the same time. They throw three eggs into the air with both hands, and they are struggling and can never catch them. Can

break the law of "impossible triangle"? There are only 6 companies selected based on this fundamental standard, Hengrui Medicine , Mindray Medical, China Biopharma, Hensen Pharmaceutical, Shi Pharmaceutical Group, Qilu Pharmaceutical (not listed). The final performance is that it is very resilient, able to smooth the economic cycle and policy impact, and can deliver stable financial reports every quarter, without surprises or shocks. Why is the impossible triangle phenomenon in

? Cash flow is the central link of biomedicine, causing tension and involvement in various parts of the enterprise, which is very difficult to balance. If a company looks good but has major flaws in some aspects, then it is a pity that the shortest piece of wooden barrel is almost impossible to fill.

Let’s first look at Duan Yongping’s early words:

Discount of future cash flow is not an algorithm, but a way of thinking. Don’t try to use a calculator to calculate it.

Qualitative analysis is the source of real profit, which may also be the most difficult thing in value investment.

I do use qualitative analysis more in investment, which is also the difference between me and Wall Street analysts. Otherwise, how could I have the chance? I can't simply look at numbers.

This is a very important judgment, and you can directly draw a inference: investing in biomedicine does not require professional knowledge.

I used to do low-risk arbitrage, which required quantitative analysis and calculation, while doing stocks was nonlinear thinking and qualitative analysis, and common sense was enough.

The R&D pipeline of biomedicine is an obstacle to investment. In the book, biomedical valuation uses the DCF model to discount pipeline's future cash flow. However, it is not energetic. Hengrui and Zhongsheng have complex and opaque pipelines, and future commercial monetization cannot be accurate. Mindray has 500 registration approval documents a year, and no one is announced, and it is only listed in the semi-annual and annual reports. It is impossible for ordinary investors to sort out a complete pipeline. Therefore, future cash flow discount is the way of thinking.

does not require biomedical expertise, just time and common sense. But you need to keep looking at it, and watch it every day for a year, and you will understand that Hengrui and Zhongsheng pipelines are rich, progressing step by step, emerging one after another, just like investing in a diversified portfolio of blue-chip stocks, the east side is not bright, the west side is bright, the risk is very small, and the fluctuations are not big. Shiyao Enbipu, middle-aged anlotinib, Hengrui apatinib, and PD-1 are all classics that squeeze the commercial value of hot products to the extreme, and there is no doubt about business ability. These are all qualitative analysis, and R&D pipelines, cash flow, and business capabilities can determine the strength.

Now, from the perspective of market and price, we interpret the buying logic of Hengrui Medicine , Mindray Medical , Tiger Pharmaceutical , and WuXi Biologics , and does not advocate buying the current overall bubble biologics immediately.

In a complete market, the price contains all information, and the stock market is effective in the long run and is becoming more and more effective, so the rationality of long-term market choices should be recognized.

If a stock rises, it is not the result of short-term fund speculation, and it is rising for a long time, then the stock price is a reasonable result of the long-term choice of the market, with fundamental logic behind it. You may understand or do not understand the information reflected by the stock price, but please stay in awe.

If you use market prices to filter the best biopharmaceutical stocks, the standard is:

is either a new high or on the road to a new high.

Hengrui Medicine , Mindray Medical , Tiger Pharmaceutical, WuXi Biotech all meet this standard. China Biopharmaceuticals is a little worse, and Shiyao Group is a little worse. Then, the stock price must contain information about market concerns. What exactly is it? In any case, Shiyao has not been worthy of heavy placing for a long time. I reduced its position by more than half at around 20 yuan, but of course, the cost-effectiveness is very high now.

only looks at the performance in the three stock market crashes. Even if I know nothing about biomedicine, I will choose Hengrui Medicine . Moreover, Hengrui hit a new high less than half a year after the circuit breaker stock market crash.

good targets may have given a very high price-to-earnings ratio from the beginning. In June 2017, WuXi Biologics was listed, with a price-to-earnings ratio between 200 and 300. At that time, it was unimaginable that the lowest price after entering the Hong Kong Stock Connect was 40 yuan. Now the stock price is 4 times, but the price-to-earnings ratio has dropped. So, for biomedicine, the price-to-earnings ratio is sometimes noisy. WuXi Biologics has a great future than WuXi AppTec , and has become China's first world-class biopharmaceutical company ahead of Hengrui Medicine . It has hoped to be the world's number one in CDMO in the next five years, surpassing Swiss Longsha and Samsung Biologics.

Why do high-quality biopharmaceutical stocks enjoy high valuation? deterministic premium , I understood this truth in 2017, and now I have thought about it in more detail. A leading biopharmaceutical company has a deep and wide moat (entry barrier) forming an oligopoly. The steady growth in the long term is certain, and the future cash flow is also certain, so the current stock price will reflect this information in advance. In addition to the game of market participants, if the company's reasonable valuation is 35PE, there is also a consensus on the future certain growth. He bought last year and this valuation is also the same as you bought this year. At this valuation, you are waiting for people to get on the bus at any time? There is no such good thing, so early comers enjoy the premium, while later comers pay the premium. Investment is too difficult. You know there is certainty here, but the price is unacceptable.

When investing, you should have dialectical thinking that coexists with multiple diversity, rather than linear thinking that is either one or the other. It is far from enough to just look at the price-to-earnings ratio and price-to-book ratio. At the other extreme now, many people do not look at the price-to-earnings ratio and price-to-book ratio at all. Several vaccine stocks are completely epic bubbles.

But the premium of high-quality biopharmaceutical stocks cannot disappear. The appropriate method is not to buy at a low price, but to buy at a low premium. If you give you a low price, it will be suspicious. In most years, due to a sharp decline, November and December are the time windows for long-term investment and position building.

Be tough on yourself, spend a year looking at a company, rejecting mediocrity, or even excellent, embracing excellence, and waiting for greatness.

Medical devices may have up to 10 times stocks

In your own investment guidance, the first sentence is "Is there always something I have thought of."

Investment is the monetization of cognition. However, cognition has a process. Even if you are very familiar with an industry or company, every time you read the financial report and research report, you will have new discoveries and new understandings, and then there will be adjustments to the willingness to buy and the severity of your position.

In recent years, I have been too focused on the pharmaceutical sector, so that medical devices, vaccines, and medical chains have been missed, and it is long time since they are added. This year, we have laid out vaccines, innovative drugs, and medical chain companies on the New Third Board. The investment logic is the difference in valuation, and the profits are more than 10 times successful, and if we fail, we lose a small amount of money.

innovative drug layout has been completed and there will be no additional positions. There are only two or three new generation companies worth investing in. Due to complete information cognition, coupled with centralized procurement and technological iteration, innovative drugs will not have excessive returns, and more and more days of worrying will be taken.

It was not until I got on the car in November 2019 that Mindray Medical that I realized the potential and prospects of the medical device field. It is the most important direction for future investment and deserves full coverage. I would like to share my initial understanding to inspire you to think more deeply.

1, In the next ten years, the most 10 times stocks of may emerge in medical devices. Growth of multinational pharmaceutical companies has stagnated, stock prices have been sideways for a long time, while device companies are still growing rapidly. Driven by increased penetration rate, domestic substitution and technical upgrades, the domestic device industry has grown faster and has a huge space.

2. Equipment is easier to understand than pharmaceuticals. You can get familiar with each sub-track after taking a few days. The barriers to various tracks of equipment are relatively clear, and leaders will hardly have the risk of lagging behind. From the perspective of investment, as long as you don’t buy too much, there will be no big risks. Because the barriers are clear, it is difficult for equipment manufacturers to compete across the track, and only through mergers and acquisitions is possible, so it is normal to have appropriate goodwill.

3. Many subdivided device manufacturers may become global leaders in the future, such as Xinmai Medical . It has this potential and is unlimited in the future. This is the incremental space after the completion of domestic substitution. The difficulty of equipment lies in market capacity, that is, the market value ceiling, which is difficult to judge. Later I saw a comment that gave people a sense of enlightenment, "What about the global market space? Medical devices are a field that Chinese people are good at, high-end manufacturing, and gradually improving and following up, which is far more suitable for Chinese companies than drug innovation. Refer to . The globalization of consumables in ." Nanwei Medical accounts for half of its overseas sales. The capacity of the endoscopic diagnosis and treatment field was originally limited, but in the global market, the space was opened up immediately.

4 and medical devices are higher than those of innovative drugs, and valuation of medical consumables is higher than that of medical equipment. The main sub-tracks include in vitro diagnosis, low-value consumables, medical imaging, cardiovascular, orthopedics, and ophthalmology. Compared with the distribution of global medical device segments, domestic ophthalmology is in its infancy and has a lot of room for improvement, but there is no decent company, so it is not easy to judge which one will grow bigger in the future. The orthopedic market capacity is relatively large, and it can accommodate two to three companies with a market value of 100 billion yuan in the future. There are multiple small tracks in cardiovascular, and only Minimally Invasive Medical can span all of them. There may be many seed players in the small track, and Hillhouse has a layout in all listed companies that have intervened in the valve, for fear of missing one.

5. Medical device companies are divided into platform type and single track. There should be no phobia for platform companies, and external mergers and acquisitions and innovation-driven can open up the growth ceiling. Mindray Medical is still a growth stock, and orthopedics has not made any efforts, and there are still many sub-tracks that have not entered. It is not impossible for the stock price to surpass Kweichow Moutai in the future. Weigao Co., Ltd. is considered to be mainly low-value consumables, but the gross profit margin is above 60%. Weigao Group has entered 11 of the 15 sub-sectors of medical devices. minimally invasive medical covers all high-end cutting-edge fields.

Some single track companies also have a platform trend, opening up space for market value expansion. Why is the valuation of Dabo Medical higher than that of Kellytai ? There is an explanation that the circulation market is small and there is a possibility of stock market share, but it should also be seen that Dabo Medical covers the fields of trauma, spine, minimally invasive surgery, neurosurgery, dentistry, joints, and sports medicine, and has a platform-based prototype, which may be given a premium to this.

Medical device market capacity is broad enough, and there are many sub-track tracks. Excellent companies may appear in each track. It is worth betting on one or two companies in advance to achieve full coverage layout.

Now I think watching the market and trading are the least important things. Future benefits come from cognition. There are always things I didn’t expect. There is a sense of urgency. I read financial reports and research reports every day and have new insights.