Introduction: After interviewing Zhou Zhishuo of Jianxin Fund, I did two things: First, I have instructed the family leaders to start daily investment in Zhou Zhishuo's Jianxin small and medium-cap pioneer (Note: The product is limited to purchase, and a single channel can only buy 10,000 a day); Second, I couldn't help but send a circle of friends and think that the fund manager in this interview was too good! Halfway through the interview, I really wanted to say "shut up and just take my money!"
After doing more than 400 interviews with fund managers, Zhou Zhishuo of Jianxin Fund can still bring us a shock of the framework system. He has in-depth thinking about many investment links. These thoughts also make Zhou Zhishuo's performance rank at the top. From Zhou Zhishuo's portfolio this year, we can see that he has re-positioned the best-performing coal in cyclical stocks and the best-performing second-tier companies in new energy. It can be said that the main opportunities in the market have been seized by Zhou Zhishuo. Of course, performance is ultimately a result, and the key is the investment system in which the fund manager achieves performance.
Chart: Jianxin Mid-Cap Pioneer A over-the-top earnings data over the years
Source: Fund Interim Report; Data as of June 30, 2022; Note: Jianxin's mid- and small-cap pioneer performance comparison benchmark is: 85% X CSI 500 Index Yield + 15% X China Bond Composite Full Price (Gross Value) Index Yield
There is an impossible triangle in investing: winning percentage, odds, frequency. It means that the chances of high win rate + high odds are very rare. Zhou Zhishuo has built an investment system that can solve both the winning rate and the odds.
The winning percentage corresponds to a stock selection. Zhou Zhishuo found that the factor that determines the medium- and long-term investment income is the performance growth rate of enterprises. The longer the time, the more effective the performance growth rate will be. At the level of stock selection, Zhou Zhishuo mainly grasps the medium- and long-term performance growth rate of enterprises, finds key contradictory factors and continuously tracks them. The duration of the performance growth rate is extended to three or five years, and the winning rate of the correct judgment is higher.
The odds correspond to portfolio management. There are two points corresponding to each of them: 1) the risk-return ratio of a single position; 2) The potential maximum loss from a single position.
First, the risk-to-reward ratio of individual stocks is ranked in the portfolio. Based on the fundamental judgment at the stock selection level, Zhou Zhishuo will make the upper limit market value and the lower limit market value of each company, so as to obtain a risk-return ratio.
Secondly, two constraints are included in the buying process: risk surplus and liquidity constraints. Risk surplus is the combination management system that Zhou Zhishuo has summarized and explored in his long-term practice, giving the maximum loss ratio to each position, and controlling a certain amount of money when buying to ensure that the phased retracement will not become a permanent loss because of passive stop loss.
Finally, how to solve the problem of frequency? Then it is to keep "turning the stones". On the "turning stones", Zhou Zhishuo has an efficient addition and subtraction system. In "addition", he tries not to miss any opportunity. If you choose a 5% to 10% cost-effective opportunity from more than 4,000 stocks, then there are 200 to 400 stocks. Therefore, the number of stocks that provide alpha in the market is sufficient, but it must be sensitive to every investment opportunity, so Zhou Zhishuo has maintained the habit of brushing thousands of announcements every day since he entered the industry.
Chart: The contribution of Jianxin's mid-cap A industry selection and individual stock selection
Source: Wande; Data deadline: 20220907. Based on the position of each (half) annual report since product management (the earliest 20150630), the industry allocation ability refers to the income of the Shenwan first-level industry that has been allocated higher than the CSI 800 index since the management; The ability to select individual stocks refers to the income of stocks in the allocation industry that have been higher than those of the Shenwan first-level industry since the management
The average person who hears a fund manager cover thousands of companies by "turning stones" will surely ask how to do it? This in turn involves Zhou Zhishuo's "subtraction". He would strip out the key factors in the company's performance growth without having to cover 100% of the information, thereby greatly improving the efficiency of research. He is also a fund manager who "does not look at the market during the day". Pursue reading and doing research in a whole slice of time, and you can get flow in the process.
There are very few fund managers who do not watch the market during the day, how does Zhou Zhishuo do it? Zhou Zhishuo believes that the biggest risk of destroying the investment system is the mentality. In order to avoid falling into emotional trading, Zhou Zhishuo made a process control of the investment and wrote the transaction plan in the evening. In addition, he has the habit of writing trading notes, and by examining the right and wrong of each transaction, he completely objectively exposes himself and thus makes progress.
Chart: Fund Manager Career Curve
Source: Wande, Ji Yu Research; The benchmark index selects the CSI 800 Index (000906. SH）； Data deadline: 20220907
This interview is long, but I still recommend that you read it carefully. In the process of writing this interview, it also gave me a lot of heartbeat. Jianxin Fund Zhou Zhishuo has in-depth thinking about the winning rate and odds of investment, the efficiency of work, and how to achieve medium- and long-term absolute returns. Many questions we haven't thought about, he has taken into account.
Below, let's first share some investment "golden sentences" from Zhou Zhishuo:
1. I analyzed the world's major capital markets and found that whether it is a developed capital market or a capital market in a developing country, as long as the performance growth rate is relatively high, the absolute return in the medium and long term is relatively high
2. In my investment system, stock selection values the winning rate, and portfolio construction values the odds
3. I am not doing style rotation or industry rotation, my trading is based on the risk-reward ratio, do a certain rebalancing
4. For example, for A stocks and B stocks of the same type of profit model, if A has risen for a period of time, and B has been ignored by the market, then the risk-return ratio of B is significantly higher than A, then I will replace A with B, although I do not know which quarter there will be a return after the replacement, but after the time is extended, the stocks in the portfolio will inevitably gradually return
5. In order to avoid the impact of mentality problems on investment, I have done process management of the entire transaction process
6. Since I don't look at the disk, my daytime schedule will be relatively large. When you lump time together, so-called flow occurs
7. There are more old energy and new energy in my portfolio, mainly found through bottom-up stock selection
8. I have a odds protection mechanism myself, and when I buy a company, it is not a 0 and 1 relationship. How much a company opens a position to buy, when to increase the position, when to reduce the position, are a set of very scientific process management
9. The portfolio construction is an order (risk-to-return ratio) + two constraints (liquidity constraint and risk surplus constraint)
10. I will make a stock pool myself, and the role of this stock pool is to ensure that every position, every investment opportunity, is comparable now and in the future
11. I think that after making an investment, trading notes are the basis for me to organize the "wrong question set". Without these "wrong question sets", it is impossible to make great progress
A framework system that addresses both winning and odds
Juan: Can you tell us how you view investing?
Zhou Zhishuo Tell a small story, I started in 2009, and when I was looking for a job in 2008, I got several different offers, including investment banks, consulting companies, and public funds. At that time, I thought about it for a long time and finally chose the public fund industry. It also has to do with my ideal, which has always been to become a respected "investment expert".
I have two views on investing:
1) Investment is serious. The essence of investment is to build trust between trustees and principals. Building trust is a serious matter. Since my dream is to become a respected "investment expert", I must want to make long-term money for holders.
2) Investing is also a joy. If you talk to friends who know me, they will mention one thing, since I joined the industry, I have read all the announcements of public companies almost every night. For me, in the process of "turning the stones", constantly seeing good investment opportunities and making money for holders, this is a very happy thing for me.
Juan: You have performed well in different market styles, can you talk about your investment framework?
Zhou Zhishuo This is a big problem. I have been in the asset management industry for a few years, I have always had a dream, if you do investment in the future, it should not be to see the relative income ranking more, but to make money for customers. My core investment goal in wealth management, private equity funds, and later pension investment is to strive for absolute returns. Having such a goal means that my investment system will avoid betting on a single track.
How to achieve this goal as an active fund manager.
First, the winning rate or probability in the investment. When people talk about investing, they usually start with the winning rate or probability. One thing I may be different from everyone else is that the duration of the winning rate is a little longer than everyone else's. Why is that?
Let's look at another question: What factors can help me achieve absolute gains with a high probability? I analyzed the world's major capital markets and found that whether it is a developed capital market or a capital market in a developing country, as long as the performance growth rate is relatively high, the absolute return in the medium and long term is relatively high.
Let's refine it a little bit and verify it from two dimensions. One is a company with relatively fast performance growth, and the absolute income is good with a high probability. The other is that among the companies that have risen more, about 70% of them have relatively fast performance growth. Through the cross-verification of these two dimensions, a conclusion can be drawn: performance must be the starting point for achieving absolute returns.
So why do I have a longer duration for my stock selection win rate? This is because looking at the stock price increase in 3 to 5 years is closely related to the change in performance, and it may not be so obvious in 1 year. This means that when I make performance predictions for companies, I mainly think about what will happen in 3 to 5 years.
Looking at one or two quarters in the short term, there are too many factors that disturb the company's performance, and it is difficult to see clearly. But if we extend our gaze to 3 years, we will naturally find the most core factors that affect the profitability of enterprises.
This is actually very similar to finishing. If we throw everything into the air first and then think about what is most important to us, you can naturally pull the most important thing out of the air. When we go to a company's financial model, it will be difficult to judge one or two quarters, but to judge the large number in the medium and long term, there is actually a large probability that it can be determined. For example, we need to judge whether a company has achieved 1 billion profits, but in the end it is 1.02 billion or 1.04 billion, which is not so important. But the final answer is not 800 million, nor 1.4 billion. Or rather, we can do a sensitivity analysis of key factors to determine whether it is 1 billion or 1.2 billion.
Understanding this, I myself in the winning rate dimension, the duration is extended, the certainty is higher.
Secondly, there is the issue of odds in investing. To have good odds, you need to control the losses caused by a single investment. From this point of view, I am investing with the mentality of a weak person and can accept mistakes. There are two points to accepting mistakes, the first is to keep tracking and feedback, not because of the psychological bias caused by the holding effect. The second point is my more unique "risk surplus" system.
Risk surplus is a risk budget for each position. When I first bought this position, I knew what the biggest loss it would bring to my portfolio. In this way, even if you are wrong, the cost is controllable in high probability.
I build combinations based on odds. Because of the performance forecast in terms of winning percentage, I would assume what kind of valuation the market will give the company in three to five years, based on the current earnings growth rate. This valuation serves as the upper limit of the valuation. I would then give a lower valuation based on historically explainable valuation patterns.
I also have a second set of valuation systems, assuming that the earnings model of subclass A is better than that of subcategory B, I will take the valuation of subcategory B as the lower valuation limit of subcategory A.
Through these two methods, an upper bound valuation and a lower valuation are obtained, both multiplied by the maximum probability of profit, to obtain an upward target market value and a downward target market value. According to the current market capitalization, the upward space and downward space are obtained, that is, the risk-return ratio of a position. I sort the entire risk-to-reward ratio from highest to lowest to build my portfolio.
It can be seen that in my investment system, stock selection values the winning rate, and portfolio construction values the odds.
Dynamic adjustment of the portfolio with risk-reward ratios
Juan: Interestingly, your investment system combines winning rates and odds at the same time?
Zhou Zhishuo I face two constraints when building a portfolio: liquidity constraints and risk surplus constraints. This led me to initially control positions. It is equivalent to making dynamic adjustments to the combination during the tracking process.
Everybody says the impossible triangle, and I myself have an impossible triangle: winning percentage, odds, frequency. Frequency means that in the vast majority of cases, it is not possible to have both high win rates and high odds. I have been thinking about how to solve this impossible triangle. By reading a lot of books, it gave me some inspiration. And this idea, after taking over Jianxin's small and medium-cap pioneers, gave me greater inspiration.
Under the premise of satisfying the contract, the investment scope of Jianxin Mid and Small Cap can cover the first 60% of the market capitalization every six months except ST stock. Assuming that the total market value of A shares is 100 trillion yuan, the first 60% is 60 trillion yuan. There are almost 4,700 stocks in the market, and most of the time only 300 stocks are not in the mid-cap range, which means that there are more than 4,000 stocks to pick from. Of these 4,000+ stocks, assuming that 5% to 10% is very cost-effective, it is almost 200 to 400 stocks.
This made me understand one thing, the number of cost-effective companies is sufficient, through the continuous "turning stones", is to be able to crack the impossible triangle of winning rate, odds, frequency.
In order to achieve this goal, I am willing to sacrifice the turnover rate. Many people who do my portfolio analysis will feel that I have certain trading skills. In fact, I am not doing style rotation or industry rotation, my trading is based on the risk-return ratio, do a certain rebalancing. As mentioned earlier, I believe that the market will effectively reflect the company's performance growth in a three- to five-year cycle. Well, we get every change in the company's performance and the change in the stock price every quarter. I have done a statistic that in the change of stock prices in a single quarter, the role of valuation is far greater than the impact of performance, which provides me with a space similar to arbitrage.
For example, A stocks and B stocks in the same type of profit model, if A has risen for a period of time, and B is ignored by the market, then the risk-return ratio of B is significantly higher than A, then I will replace A with B, although I do not know which quarter there will be a return, but after the time is extended, the stocks in the portfolio will inevitably gradually return. This dynamic combination of substitutions constitutes what I call excess returns on trading.
To sum up, I am constantly "turning the stone", believing in the long-term effectiveness of the market, and using short-term less effective angles to make a combination of substitutions, to solve this impossible triangle.
Avoid impulse trading with process
Zhu Ang: From the winning rate, the odds, to how to solve the impossible triangle, I feel that your investment system considers a lot of links, what is the reason behind this?
Zhou Zhishuo Munger said that it is easy to think about what kind of questions are most likely to destroy your framework. When I have built this framework, I also think about what the possible risk points in this framework are, and which problems are most likely to destroy the framework.
I find that the most common problem with breaking down fund managers comes from mindset, and the associated range of emotional trades. Many people see it accurately, but why they do not do so well is because of psychological deviations, resulting in people not objectively evaluating the combination.
In order to avoid the impact of mentality problems on investment, I have done a process management of the entire transaction process. I see investing as the management of a process.
For example, before going to investigate listed companies, I will do many expert interviews, first do a lot of information collection and collation, and make high-quality preparations for research. In the process of research, to understand what the core factors of the company are. After that, it is constantly tracked, constantly overriding the priori probability with the probability of a priori.
When I have a good risk-to-reward ratio, I include it in my stock pool. To achieve effective trade execution, it is necessary to make transactions processable. I will write down the next day's trading plan the night before and send it to the trader during the day of the next day. I don't watch orders during the day, and I don't make intraday orders to avoid emotional trading.
When I make trading plans, I know what it is like to enter and exit every position when there is no major change in fundamentals. I review my trading plans weekly, monthly, quarterly. Every semi-year, I score and evaluate every transaction.
The process of evaluating transactions is actually very anti-human, and it will constantly touch me, why I did it wrong at the time, why I did it right. Through continuous trading evaluation, I will also make a lot of progress.
Zhu Ang: You are a purely bottom-up stock selection fund manager, but different industries have different business models, different drivers, and your stock selection coverage is very wide, how do you do this?
Zhou Zhishuo Everyone knows a book called "Deliberate Practice", which mentions the concept of 10,000 hours of training. But there's also a book recommended by Bill Gates, called "The Boundaries of Growth," which mentions the concept of generalists.
For me, I do subtraction where appropriate, and do general shifting in some areas. I think that for the collection and collation of fundamental information, only 60% of it is enough to grasp the key factors of the company. The remaining 10% to 20% of the information is obtained through tracking, and the rest may be less important or critical to the investment. After I finish the model, I label each company with the key factors. Just keep track of the key factors.
Secondly, I like to do structural and modular thinking. After building more models, you can naturally find some commonalities. I ask the sell-side analyst weekly for some price database. Through the price database, I can find some triggers as important triggers. When the price rises and falls to a certain extent, I check the company, the supply and demand balance sheet of the product, and the cost curve. It may be that the supply and demand balance and cost curve of each variety are different, but many of the upstream and downstream relationships are similar.
There is also a key point here: do less tandem assumptions and more parallel assumptions. The tandem hypothesis is the probability that requires multiple hypotheses to be combined. For example, Assumption 1 is 90% correct, Assumption 2 is 90% correct, Assumption 3 is 95% correct, and the final concatenation is only 76.95%. I try to do as many parallel hypotheses as I can, and when I talk to the researchers, I can discuss the model directly with them, all of which are discussions of the key factors.
Since I don't look at the market, my daytime schedule will be relatively more. When you lump time together, so-called flow occurs. My colleagues also know that I have a habit of basically sitting there and not wanting others to disturb me. When I used up the whole piece of time, I had a 5 to 10 minutes of easy communication, and then I used the whole block of time to work. Through focused work, you can also improve the efficiency of learning.
Zhu Ang: If you look at the position alone, sometimes it will give people the illusion of doing industry rotation from the top down, for example, this year, your combination has repositioned old energy and new energy respectively, can you talk about how to select these opportunities from the bottom up?
Zhou Zhishuo If you pull my portfolio out to see, there is a coal heavy stock that entered my top ten positions in the first quarter of last year. I didn't predict high inflation and energy opportunities this year at the beginning of last year. It was only at that point last year that the company had demonstrated a very good risk-to-return ratio. If you look at my portfolio, it looks like I have added to the old energy this year, but in fact, it is because I have dismantled the supply and demand balance sheet and cost curve of the industry.
We look at the balance sheet of coal companies, the past many years of liabilities, equivalent to a reservoir, there is a high probability that they must first fill their own reservoirs, in order to carry out normal performance release. When I find the key hypothesis, I also have to track it to ensure that the potential risk-to-return ratio of each investment is measurable, not to buy the hypothesis.
New energy began in the third quarter of 2020 and has appeared one after another after my group. Some seem to be mainstream, some seem to be not mainstream, and even seem to have nothing to do with new energy. For me, stock selection is about starting from the perspective of the risk-to-reward ratio. We choose a 50% growth company from a 30% growth industry, and the probability is higher than that of a 50% growth company in a zero-growth industry. My portfolio has many "new energy +" companies, which take new energy as the second growth curve, and once successful, the profitability is better, and it also provides a high risk-return ratio.
Since I made an investment, everyone has labeled me a growth bias. In the vast majority of cases, I don't own as many white horse stocks. The reason is also very simple, those companies with higher risk and return usually have a relatively high growth rate, but the attention is not high. This kind of company is relatively easy to implement Davis's double-click, but it needs to be constantly "turned over the stone" to find. For the big white horse, it will also appear in my portfolio in stages, and these companies provide a better risk-to-reward ratio at a certain point in time.
Back to this question, there are more old energy and new energy sources in my portfolio, mainly through bottom-up stock selection. For example, coal stocks, even if the growth rate will come down later, the dividend yield is also considerable, and the risk-return ratio can be calculated.
Zhu Ang: And your income distribution is very balanced, but the stock market is power-law distributed, which means that very few stocks should contribute the vast majority of returns.
Zhou Zhishuo There is a small trick here, the capital market often has doubts about the performance of one quarter, and the performance of two quarters may still be doubtful, and when the performance of three or four consecutive quarters is very good, everyone will finally pay attention to this company. Everyone buys recognized good companies and good industries for a long time, mainly from the perspective of winning rate. However, because the time point of purchase is different, the odds are different for each person.
For me, I want both the winning rate and the odds, so I won't hold as much as everyone does, and I will keep tracking to see what happens to the fundamentals of the company.
I have a odds protection mechanism myself, and when I buy a company, it's not a 0-1 relationship. How much a company opens a position to buy, when to increase the position, when to reduce the position, are a set of very scientific process management. I use combination management to protect the odds for each position.
For example, if a company assumes a 5-fold increase, then when the first year of release performance, how many positions should I buy, and then continue to release, how do I add positions. If there is a plunge, how should it be handled.
Customize the risk remainder for each position
Zhu Ang: Can we talk about the system of risk surplus?
Zhou Zhishuo Risk The goal of the remaining system is to control the maximum drawdown of the portfolio. Try not to let yourself be thrown out in the process of falling. There are many ways to control drawdowns in the market, one is a strictly mechanized way, there is a maximum drawdown to reduce the proportion of positions. Another is to look at the candlestick chart to control the drawdown. Of course, there are also people who don't care about the drawdown.
As I mentioned earlier, individual stocks in every stock pool have a potential upside and a room for decline. I want to know that when emotions are vented, the company's stock price may fall below the point of maximum downspace. Then my risk remains, and it should be left to the fullest.
Suppose I have 5x upside for this position, 30% downside and 1.5% risk remaining. This means that if I buy a 5% position and the stock really falls by more than 30%, I am going to stop the loss. So in the beginning, I don't buy 5%, but buy 3%, for every 10% decline, I add 0.5% of the position, and when it falls below 30%, I can add positions, because the maximum drawdown to the portfolio is not more than 1.5%. As long as I don't get out, and my initial judgment is not wrong, then the bottom is a relationship of 0.7 to 5 times, which becomes 7 times the potential profit space.
Zhu Ang: But does the more you fall and the more you buy, is there also a degree, the biggest problem for many retail investors is that the wrong judgment is that the more you fall and buy, turning a wrong position into a maximum position?
Zhou Zhishuo Risk surplus is my stop loss system, and there will be no situation of buying more and more as much as possible. I also mentioned the liquidity constraint earlier, which means that if I really break below the maximum drawdown, then I also have to make sure that I can sell. Assuming my risk surplus changes from 1.5% to 2%, that means the original setting of 1.5% doesn't make any sense. And 1.5% is meant to ensure the maximum drawdown that a single position brings to the portfolio.
There is also a situation where the risk of correcting me remains. Suppose a company makes a big correction to its performance, then the original risk surplus is no longer appropriate. That's why, I put a lot of emphasis on replacing a priori with a posterior. Stocks with fundamentally changed fundamentals will naturally be replaced.
Juan: That is, your combination will do a certain rebalancing?
Zhou Zhishuo First of all, we have to answer, what is the meaning of rebalancing? Most of the time, rebalancing will give you more stability at the expense of a portion of the yield. My rebalancing is a constant comparison of stocks in the same asset class from the perspective of risk-to-return ratios. The key here is to compare the same type of asset. If it is a market-wide asset comparison, it means that constant rebalancing will sacrifice the efficiency of many heavy stocks.
Heavy storage of coal because the cost performance is too good
Zhu Ang: Can you share a representative investment case?
Zhou Zhishuo Every investment I make, there are trading notes and trading plans, or let's talk about the old energy case of the heavy position. The company has two different models, one is a simple disassembly and the other is a complex disassembly.
Let's start with simple model disassembly. According to the company's annual report released the previous year, it can be calculated how much the company's own coal mine is, and then according to the average price of the industry, to calculate how much the company's profit in this part of the company is, these are all public information can get. For example, if a listed company has its main business in Australia, the disclosed data is very detailed and how much the company's overseas business contribution can be obtained from it. The two add up to the company's underlying profit.
On top of the underlying profit, we see that the company made an acquisition the year before, and when the listed company did the injection, it was also written very clearly that the coal mine and chemical assets injected were of better quality than the original mine. This means that the amount and price of this mine will not be weaker than the average price of the company, and the cost will most likely be lower than the original mine, and it can be calculated how much profit this part contributes under the assumption that the coal price remains unchanged.
The dismantling of all this data led me to the conclusion that the valuation at that time was only about 3 times that of the same coal price. And at the price of coal in 2020, the corresponding 3 times the valuation is not from the profit level of the peak of the price. We can also figure out what the company's dividend yield is, which naturally calculates the risk-return ratio. This is the algorithm for a simple model.
Let's talk about complex model disassembly. At that time, I did a look at the supply and demand balance sheet of the domestic coal industry and came to a conclusion that the entire thermal coal price is easy to rise and difficult to fall. Because of the lack of capital expenditure, and some historical problems, I thought that the long-term average price of coal would be above a certain price, and even when winter came, we might see another higher price.
I made a new risk-to-return ratio according to the average price of coal at a certain price, and through the calculation of this complex model, the real risk-return ratio of the company was obtained. The corresponding valuations are cheaper and the dividend yields are higher. In my view at the time, it was a good asset for the next few years.
When I compared this company with other companies in different industries and different profit models, I found that this company does have a significantly higher risk-to-income ratio than most companies.
Juan: For companies like this one with significantly higher risk-to-return ratios, some bottom-up stock pickers will buy all the money right from the start, but you don't seem to be in this style?
Zhou Zhishuo As mentioned earlier, the portfolio construction is a ranking (risk-return ratio) + two constraints (liquidity constraint and risk residual constraint).
There are a lot of stocks, according to the risk-to-return ratio, I can buy 8 points, but in reality, the risk surplus is not so much, the liquidity is not good, I may buy 2 points.
For example, the same two targets, one target risk return ratio of 3 times, the other target risk return ratio of 2.4 times, but the former liquidity and risk surplus is not so sufficient, the latter liquidity is good, the volatility is relatively low, then the second target is easier to choose into my portfolio, and even the position will exceed the previous target.
I myself will make a stock pool, and the role of this stock pool is to ensure that every position, every investment opportunity, is comparable now and in the future. The number of this stock pool is fixed, and by looking at the overall risk-return ratio of the stock pool, it can tell me the "temperature" of the market.
Assuming that my pool of stocks as a whole has been declining, it means that the market is in a bubble period, or it may be a Great Depression, which means that it is not a good "temperature". Another benefit is that this stock pool can be a reminder of the opportunities to subdivide betas. Suppose three stocks are suddenly selected in a certain sector, which means that some common changes in sub-sectors are taking place. These changes may occur on the profit side, or they may occur on the ROE side, or on the balance sheet side, but they must be some common changes that can be abstracted.
What is more interesting is that in 2020, when I had a portrait of an internal fund manager within the company, my portrait became a fund manager in the style of industry allocation, and everyone found that my positions were concentrated in a few industries. But in fact, I am a relatively pure bottom-up player, and the situation of industry allocation is an objective presentation after stock selection.
Zhu Ang: From the performance point of view, you are more adaptable to different market styles, how did you do this?
Zhou Zhishuo Because I gave up the ranking of short-term thematic investments and relative returns. As long as the time is slightly extended, the effectiveness of the performance factor is very strong. In my investment career over the years, I've also found that as long as I follow the absolute return strategy, the relative return ranking is often very good.
Brush up thousands of announcements every night
Zhu Ang: You also mentioned earlier that when you entered the industry, you maintained a habit of watching announcements every day, and now that the number of listed companies is increasing, can you still insist on reading announcements every day?
Zhou Zhishuo My work habit is that every night after 9 o'clock with the children to start reading announcements, almost every night to see 2,000 to 3,000 announcements, but I have a set of more efficient methods, less than 3 hours to read the announcement.
Why are you willing to brush up on announcements every day? Announcements often wake up the memory points of the combination, allowing me to perceive what has changed in the core elements of the company and what the results of that change will lead to an update on these companies.
There are two kinds of waste in the market, the first is that people may do a lot of things, but the "key factors" are a bit more. For example, when investing in cyclical stocks, few people spend energy on the supply and demand balance, and finally they all become looking at the spot price to invest, and the key factors of the company are not found in the investment.
The second waste is that you spend a lot of time to get the plan right, but the next day the opening of the market saw a 3 points up, the mentality changed, and immediately overturned the original plan.
Zhu Ang: Don't look at the disk during the day, completely study, don't look at the inner fluctuation of the disk?
Zhou Zhishuo may be because I am used to delayed gratification, and watching the disk is an instant satisfaction. I don't think it makes much sense to look at the market.
Juan: Will the increase in scale bring challenges?
Zhou Zhishuo For me, after having an investment goal, do a goal disassembly, corresponding to different links. How to do each link and how to refine it is a very scientific thing. At least the scale is still within its expectations.
Ultimately, the core goal of my investment is the same, and under this goal, I will see how much money my system can accommodate.
Learn to accept a self that can make mistakes
Zhu Ang: In the investment career, are there any leap points or mutation points?
Zhou Zhishuo I think the establishment of investment methods is a spiral feeling. I'll give you a simple example, when I first invest, I also go to capture trading opportunities. After that, through my trading notes, trading plan review, and scoring, I made a lot of improvements in the trade execution process.
When I was in the private placement before, because the scale was not large, there were not too many sellers to provide services, so I forced myself to take out the model of the listed company, and then called the board secretary to talk on the landline. After talking with me for half an hour, the other party said, "Xiao Zhou, I think you know our company too well, welcome to come to our company." "It was probably the first company I came across that gave me positive feedback and strengthened my confidence in doing these things."
Including after I went to a listed company, I not only talked to the secretary of the board of directors and the chairman, but also talked with some people who did business, and dismantled according to the key factors of the company. Many people who do business think that I understand it very well, and everyone has become very good friends.
These things for me, not called mutation points, but key points.
Another experience is doing pension investment in public funds. There are actually more constraints on pension investment, which makes me think about the system of risk surplus. So my portfolio management system of pursuing absolute returns has been trained in pension investment.
Zhu Ang: How did you come up with the system and concept of risk surplus?
Zhou Zhishuo This is still related to investment goals. My investment goal is absolute return, and I pursue customers to make money after buying at any point in time, holding it for a period of time. When doing absolute returns, the most important thing to learn is that you must stop loss. The system of risk surplus is centered on how to better make the stop loss good.
Secondly, I often recommend books to everyone, and there is a book "Margin of Safety" that has had a great impact on me. In my personality, I prefer to do reverse investment. This creates a contradiction: on the one hand is the stop loss, on the other side is the reverse investment, the more down the more to buy. So what are the various advantages behind these two kinds of thinking?
Behind the reverse investment, it is not the pursuit of high win rate, but it requires one or two key investments to make up for the previous losses. Because the more you fall, the more you buy, as long as you look right, one can reach ten people. This is somewhat similar to the high odds play in the primary market.
This made me think about how to solve the problem of winning rates and odds. Going back to my initial goal, since I was going to pursue absolute returns for my clients, I couldn't have the same uniform stop-loss standard. Assuming that one company has 10% potential downspace and another company has 50% potential downspace, then according to the unified standard, I will definitely become a heavy stock with 10% potential downspace, which becomes a controlled drawdown, not an absolute gain for the customer.
So I thought, can not buy so heavy at the beginning, according to the different risk-to-return ratios of stocks, and then calculate the potential cost of each stock according to the downside, which will gradually make the risk surplus system.
Juan: You are extremely diligent, can this state be maintained?
Zhou Zhishuo Today colleagues also joked that I seem to stay up a lot of nights, but the hairline is still protected. I think one is that I do things faster, and I've been thinking about how to be more efficient. But at present, I am still "turning stones" one by one, and I have not used quantitative models to do the initial screening.
From the perspective of work attitude, I have no problem. I also maintain a certain amount of fitness every week, and physical fitness is also very important.
Zhu Ang: Investment pressure is very large, sometimes too much pressure will lead to deformation of the action, how to resist pressure?
Zhou Zhishuo I think there are many kinds of pressure.
The first type of pressure is self-demanding. Many people in our industry are graduates of prestigious schools, and their academic performance has been particularly good since childhood, and they may not be willing to admit their shortcomings from the personality. My cognition is the weak thinking, investment is about probability, to allow themselves to make mistakes, admit that they can not be 100% correct. When you accept yourself as a weak person, you can accept a lot of things and solve a large part of the stress problem.
The second pressure is the issue of performance. After all, I have been making investments for so long and have been thinking about my own framework. When encountering performance pressure, you must believe in your own system and framework. Even the famous "magic formula" (a formula mentioned by Joel Greenblatt in "Stock Market Steady Earning" is to look for stocks with high quality (high EBIT/IC, return on capital) and low price (high EBIT/EV, return on investment enterprises), rank listed companies in descending order by EBIT/IC and EBIT/EV, and then add up the two rankings, focus on the top 30 stocks, and find that their return on investment is about twice that of Standard & Poor's (20%>10%), This case has also been ineffective for many years, but it has been effective for a long time.
Therefore, when there is pressure on performance, we must believe in this system, strictly abide by our own system, and do the right thing with high probability.
Finally, I am also grateful to my lover and family. The reason why I don't start working until 9 p.m. every night is because I have to spend time with my children. When you are with your children, it is like looking in the mirror, you will tell me what your strengths and weaknesses are. It's also a great way to relieve stress.
For the industry and customers, we must be honest and trustworthy
Juan: Are there any life principles that you think are important?
Zhou Zhishuo The most important principle is integrity and trustworthiness.
When I communicate with institutional clients, it is completely real and tells everyone the truth about my system. Including how my trading notes in history were made, they were told truthfully. This system may be my own understanding is actually relatively clear, but the first time you hear it, you will feel a little complicated, and you need to share and communicate transparently. I think the asset management industry is a process of building trust, and only honest and trustworthy people can slowly build trust.
Juan: Are you still taking trading notes today?
Zhou Zhishuo Trading notes are a good habit, and until now, I have insisted on writing trading notes. In the process of writing trading notes, it was very helpful to improve my cognition.
When I go to the roadshow, some people will use the positions of the semi-annual report and the annual report to make fits, and then ask me why I bought and why I sold. People's cognition is easy to blur, sometimes we buy the reason is A, but in the end the reason for the stock price rise is B. Through trading notes, you can expose all your problems to the fullest. This is actually anti-human.
Let me give you a simple example, when we used to read books, it was very helpful to look at our own "wrong problem set" and know what knowledge we did not master. I think that after making an investment, trading notes are the basis of my "wrong question set". Without these "wrong question sets", it is impossible to make great progress.
What I'm really afraid of is going further and further down the wrong path, not the hard work of walking on the right path.
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