Yang Delong: Leaving an adequate margin of safety is the key to the success of value investing

Yang Delong is the Chief Economist of Qianhai Open Source Fund and a director of the China Chief Economist Forum

He Lifeng, member of the Political Bureau of the CPC Central Committee and Vice Premier of the State Council, attended the national video conference on "Deploying Visits to Listed Companies and Promoting the High-quality Development of Listed Companies" in Beijing on January 29. This meeting reflects the great importance that the national level attaches to the high-quality development of the capital market and listed companies. It has released an important signal that the high-quality development of listed companies will help the high-quality development of the economy and the smooth operation of the capital market, which is of great significance for stabilizing the expectations of the capital market and boosting investor confidence. The improvement of the quality of listed companies is the foundation for the long-term healthy development of the capital market. Improving the quality of listed companies is also a task that the CSRC has been promoting. In recent years, the China Securities Regulatory Commission (CSRC) has continued to optimize the structure of listed companies, promoted the deepening and implementation of the registration system for stock issuance at the entry end, strengthened the supervision of issuance, adhered to the priority of quality, and continued to consolidate and deepen the normalized delisting mechanism at the export end. Through the survival of the fittest, let the good companies stay in the market. In this way, it can promote the overall improvement of the quality of listed companies and cultivate high-quality head listed companies. Vice Premier He Lifeng pointed out that listed companies are an important micro foundation for high-quality economic development, and promoting the high-quality development of listed companies will help high-level scientific and technological self-reliance and self-reliance, accelerate the construction of a modern industrial system, and help enhance market confidence. It is necessary to clarify the goal orientation, and take the promotion of the improvement of the performance of listed companies and the restoration of investment willingness as an important measure to promote economic stability and progress, promote stability, and establish first and then break down.

Listed companies in mainland China cover 90 major industries of the national economy, which is the "basic disk" of the real economy and an important micro foundation for high-quality economic development. At present, the mainland capital market is at the bottom of history, and by improving the quality of listed companies, the expectation of promoting economic recovery is enhanced, which is conducive to invigorating the capital market. It is of great significance to boost investor confidence and promote the capital market from a rebound to a reversal, which is of great significance for building a long-term and healthy capital market. By improving the quality of listed companies, it is also to improve the investability of the A-share market, so that the majority of investors can make money by buying funds and stocks, and can achieve property income through stock investment and fund investment, which is also a fundamental measure to boost consumer confidence and consumption power. Building a financial power is inseparable from a prosperous capital market, and listed companies are the cornerstone of the capital market, and it is very important to promote the long-term healthy development of the capital market by improving the quality of listed companies.

At present, the mainland capital market is still in the position of the historical bottom area, and it can be seen from some market bottom characteristics, such as the issuance of new funds is close to the freezing point, and even the phenomenon of zero subscription of some new fund issuances has not appeared before, indicating that the market sentiment has reached the freezing point. Judging from the price-earnings ratio of the CSI 300, it has fallen to 10 times, and many bottoms have bottomed out at about 10 times in history. Recently, the policy support for the strength of the capital market has been increasing, and under the joint efforts of the policy, investor confidence is also expected to gradually recover. However, since the A-share market has fallen for three consecutive years, the market trend has been a process of bottoming downward, so it is still inevitable that there will be repeated shocks at the bottom and the divergence between long and short will increase. Therefore, the market is not only a process of bottoming out but also a process of bottoming out and repeatedly grinding the bottom, so investors are advised to have confidence and patience.

From the perspective of stabilizing economic growth, the recent efforts to support economic recovery are increasing, including the current relatively large risk area of the property market, and the policy side is also constantly releasing positive signals. The Ministry of Housing and Urban-Rural Development proposed that in view of the new situation of the current real estate market, each city can independently adjust the real estate regulation and control policies according to the city's policies. Guangzhou took the lead in relaxing, completely lifting the purchase restrictions on housing above 120 square meters. People from all over the country can go to Guangzhou to buy a house of more than 120 square meters. For the citizens of Guangzhou, there is no limit to the number of houses of more than 120 square meters, which will release a great rigid demand. For houses below 120 square meters, the corresponding number of units can be reduced by listing for sale or rental, that is, the number of newly purchased units can be increased. This is close to the complete lifting of purchase restrictions. It is expected that after Guangzhou announced the relaxation of real estate purchase restrictions, other first-tier cities are also expected to follow suit, and eventually gradually achieve a comprehensive relaxation, so that real estate market transactions can return to the market, which also preliminarily verifies the fourth of my top ten predictions in 2024, that is, the administrative restrictions on real estate sales will be gradually lifted, and the financial sector will increase its support for real estate enterprises, effectively resolving the systemic risks of the real estate market. As a pillar industry of the national economy, real estate is conducive to economic recovery once the risk is gradually resolved.

To do value investing, fundamentally speaking, is to buy a good industry, a good company, and choose a good price. But under normal circumstances, the prices of good industries and good companies are not cheap, and only when the market is in a downturn, or even when there is a stock market crash, there will be a good price. I remember Warren Buffett participating in CCTV's talk show in China, and when the host asked him what was the principle of successful investment? Buffett said that the first thing is to treat stocks as the company's shareholder certificates, and to buy stocks is to buy a part of the company and be a shareholder of the company. The second is the margin of safety, which is that the price of the company you buy is much lower than the intrinsic value of the company, which is the key to success. This is also the essence of value investing that Buffett learned from his teacher Graham. For many people, stocks are still treated as a string of symbols, or as a number that beats all the time. In this way, it is difficult to hold on to the market downturn. If buying stocks is buying a company, as long as the fundamentals of the company have not changed, it is still a good company, and even if the price falls, it has no essential impact on the company's operation. That is to say, most listed companies do not actually have reflexivity, and the decline in stock prices does not affect the operation of enterprises, so that there is no need to worry about the business operation being too affected, once the economic cycle is up, the operation of these good companies will improve, and the stock price may also hit a new high.

Leave an adequate margin of safety when investing to reduce investment risk and increase certainty of investment returns. Investors should look for investment opportunities with low valuations and high growth potential, and buy when the price is below their intrinsic value. In-depth analysis of corporate fundamentals and a clear grasp of market trends are very important. Only by understanding a company's fundamentals and industry outlook can you accurately assess its intrinsic value and buy when the price is below intrinsic value. The margin of safety is one of the core principles for achieving a successful investment. By leaving a sufficient margin of safety, investors can reduce investment risk and increase the certainty of returns. But investors should be patient and wait until there is a clear mispricing in the market. At this point, investors can gain an adequate margin of safety by buying stocks that are priced well below their intrinsic value. Through long-term investment and value investment, we can share the growth of enterprises with sustainable competitive advantages and good management, so as to truly obtain good returns. At present, many high-quality companies have been mistakenly killed, and the price may only be two or three folds relative to the high point, which is undoubtedly a good time for layout, and it is recommended that investors conduct in-depth fundamental analysis and wait patiently for the arrival of the next round of market.