The following figures show the huge horizontal compounding of Kweichow Moutai and China Evergrande around 17 years ago because of the industry margin of safety:
(Figure 3 Kweichow Moutai 2010-2018 Monthly Line)
(Figure 4 Kweichow Moutai 2013-2017 revenue sources)
(Figure 5 China Evergrande 2014-2018 Monthly Line)
(Figure 6 China Evergrande's revenue sources from 2015 to 2017)
In the two cases I know of, the price-to-earnings ratio went from low to high to generate more than 80 percent of the wealth in about a decade. This phenomenon is not accidental, it is inevitable! In the human secondary market, the emergence of Mr. Market has led to the continuous occurrence of irrational mispricing regularity, and when the industry margin of safety appears, because the downturn period is maintained too long, Mr. Market's emotions will fall into the most serious pathology and irrationality, resulting in the greatest mistake and underestimation leading to the largest margin of safety. Because the downturn is maintained too long, in the late stage of the long-term downturn, there will inevitably be new growth of fundamentals (this growth in the late downturn is counter-expected growth), the new anti-expected growth is superimposed with Mr. Market's irrational emotions, so that the enterprise and Mr. Market create wealth at the same time, so the wealth created by Mr. Market, which is more than the wealth created by corporate growth, must be more than the wealth created by corporate growth. As a result, when the industry safety margin occurs, it forms the largest investment opportunity and the largest source of wealth in all fields of human society! This explains why the Davis family's long-term return is the highest in the history of all mankind, because it is a law and a necessity! After a long downturn in the industry's margin of safety, the cashing period was short and violent.
The rising cycle time of the industry is significantly longer than the adjustment cycle, and the duration of the rising cycle is longer than the adjustment cycle, thus ensuring the progress of the industry and social progress, if the recession cycle is longer than the growth cycle, then the industry will shrink more and more, the society will shrink more and more, and growth and progress will not be able to talk about.
However, the phenomena prevalent in the human capital market are:
(Figure 7 Comparison of industrial development bull long bear short and stock market change bear long bull short)
The decline cycle of stock prices is longer than the rising cycle of stock prices, and there is a phenomenon of bears and bulls, especially China's stock market has always been short bears and bulls.
Why is the industry always bull long and bear short, but the stock price is always long and bull short? Because there is an extremely important subject in the secondary market - Mr. Market, during the period of enterprise recession, when Mr. Market falls into panic and pain, it takes a long time to eliminate such painful pessimism, and it takes time to digest pain and pessimism This is the law of emotional evolution; In the process of error correction, the stock price rise time is short and rapid, because Mr. Market has long been in the wrong pessimism, the gradual improvement of the fundamentals is ignored, so the fundamentals continue to improve more obviously, when the fundamentals are better than everyone knows, a certain event induced Mr. Market once sober, panic will be as unstoppable as the Yellow River bursting its banks! And the rise always inspires optimism, and optimism can develop quickly to the point of being incomparable, so the rise in stock prices is always short and urgent. Mr. Market's pathological cognition and emotions distort objective fundamentals, and this distortion is bound to be corrected at some point, and when mistakes are corrected, stock prices need to match objective fundamental facts with a sharp rise in a very short period of time.
The value law curve shown in the textbook is a perfect absolute symmetrical graph of ups and downs, and in the real market, the decline time is much longer than the rising time, the downturn accounts for more than 80%, and the rise accounts for only 20%. The value law curve of textbooks should be optimized. The industrial value law curve and the stock market value law curve consistent with the facts are as follows:
(Figure 8 Industrial Fundamental Value Law Curve)
(Figure 9 Secondary Market Stock Price Value Law Curve)
-------------------------------------------------- from "No Jitai Fund 2023 First Quarter Report"