Yang Delong is the Chief Economist of Qianhai Open Source Fund and a director of the China Chief Economist Forum
Recently, the Hong Kong stock market has continued to rise, with the Hang Seng Index standing above the 19,000-point integer mark, and the signs of capital inflow are more obvious. The A-share market has repeatedly fluctuated after the Shanghai Composite Index stood above 3,100 points, indicating that the long-short divergence still exists. However, in the medium and long term, the positive factors affecting the market are gradually increasing, and the negative factors affecting the market are gradually weakening, which may be conducive to a further rebound in the A-share market, and the market is expected to show an upward trend.
On May 4 this year, I attended the sixth on-site meeting of Buffett's shareholder meeting in Omaha, and listened to the insights of Warren Buffett, the stock god, and the reason why Buffett was able to succeed is inseparable from his long-term unswerving commitment to being a shareholder of the company and growing together with a great company. Moreover, Buffett can truly overcome the weakness of human greed and fear, and if a bubble occurs, he will reduce his position in a timely manner, for example, in the past few quarters, he has basically reduced his holdings of US stocks by more than $20 billion per quarter. According to the first quarterly report, Berkshire Hathaway has $182 billion in cash on its books, and Buffett expects that cash reserves may reach $200 billion by the end of the second quarter. In other words, when the U.S. stock market continues to hit new highs, Buffett has begun to gradually take profits and reduce positions.
On the contrary, if there is a large decline in the market, especially when there is an extreme decline, Buffett will decisively buy, it can be said that Buffett's success is precisely to overcome the greed and fear of human nature, and to achieve contrarian investment. At present, A-shares and Hong Kong stocks have just risen from the bottom, and the valuation is still at a historically low position, so it is recommended that everyone must implement value investment and dare to lay out when good companies are undervalued.
This Buffett shareholder meeting is the first shareholder meeting without Munger to participate in the shareholders' meeting, because Munger has passed away in November last year, Buffett is a little sad, but it does not affect him to answer questions, tell a lot of insights, and frequent golden sentences. At the beginning of the meeting, Warren Buffett first remembered Munger, and reviewed Munger's life by playing a short video, Munger is a wise old man, and he often hangs on his lips to say "think the other way, always think the other way around". That is to say, to do investment to have reverse thinking, for example, the current market is in the bottom of the recovery stage, the valuation of A shares and Hong Kong stocks from the global perspective is relatively low, on the other hand, this is a better time to layout, global capital may flow out of Europe, the United States and Japan, these stock markets in a historically high position, looking for a new valuation depression, and A shares, Hong Kong stocks are undoubtedly the current valuation depression of the world's major capital markets, so Munger's idea of reverse investment I think is very appropriate.
Warren Buffett highly affirmed Munger's contribution to Berkshire Hathaway, saying that without Munger, Berkshire Hathaway would not have achieved what it is today, and Munger contributed to the formation of Buffett's current value investment concept. Before meeting Munger, Warren Buffett liked to buy cheap companies and buy them when the company's stock price was over-falling. But Munger told him that he could only achieve small things, and that if he wanted to get a big return on investment, he had to grow with great companies. That is the classic saying: I would rather buy a great company at an ordinary price than an ordinary company at a great price.
It is this sentence that makes Buffett's later purchases of the world's leading good companies, and mainly covers two major areas - consumption and finance, and these two areas are the two major areas that really create value for shareholders from the perspective of A-shares and U.S. stocks. It is difficult for many industries to continue to make profits for shareholders, such as manufacturing, which may create value for shareholders when the prosperity is relatively high, but under the fierce competition in the industry, especially under the price war, profits tend to decline sharply, or even losses, so from the perspective of a complete economic cycle, it is difficult to obtain long-term and stable returns from the manufacturing industry, and many technology stocks are often difficult to return to investors from profits, unless technology stocks already have the attributes of consumer stocks.
Warren Buffett stubbornly sticks to value investing and does not blindly follow the trend, for example, this year's hot AI, Buffett still basically did not invest. He said that I don't know anything about artificial intelligence, so I don't invest, because it is not within my circle of competence, so I stubbornly stick to the circle of competence and only invest in the two major fields of consumption and finance that can create long-term profits for shareholders, which is also the secret of Buffett's success.
Now the Fed is in a dilemma in terms of monetary policy, and if it announces a rate cut too soon, it may lead to a more severe inflation situation in the United States, which has already risen again, and inflation expectations will resurge. If interest rate cuts are postponed, it may have a big impact on the debt burden of US businesses and residents, affecting the growth of the US economy. So now the Fed is on both sides of the list, some Fed officials are more dovish, and some Fed officials are more hawkish.
This time I went to the United States to attend Warren Buffett's shareholder meeting, and went to New York to visit Wall Street financial institutions, I really feel that the inflation in the United States in the past three years is indeed very strong, compared with the 2019 time when I went to the United States to attend the August shareholders' meeting, many prices have risen two or three times, and the average should have risen by more than 30%, which has caused a lot of upward pressure on the cost of living of residents, and high inflation has indeed affected the lives of ordinary people.
But now the Fed has raised interest rates to a high of 5.25% to 5.5% through 11 violent interest rates, and the high benchmark interest rate has put a heavy financial burden on households and businesses. The U.S. government's annual interest expense, which already exceeds GDP, is also a huge amount, forcing the Fed to make a monetary policy pivot.
Now the market is more consistent with the expectation that the Federal Reserve may announce the first interest rate cut at the September interest rate meeting, and the rate cut may not be too large, but the rate cut may still be achieved this year, because if the interest rate is high for a long time, it may have a greater impact on the U.S. economy itself, as for when the Fed will cut interest rates, we will wait and see.
At present, the A-share market has started the second wave of upward offensive, but the rhythm of the upward offensive has been twists and turns, and the differentiation of different industries and sectors is more severe. At present, the relatively strong sectors of the market are still dominated by sectors with low valuation and high dividend yield, which is also in line with the characteristics of the current market, because the risk appetite of the market is now low, and many investors pay more attention to the safety of investment and the stability of returns, while the blue-chip sector with low valuation and high dividend yield is more in line with this characteristic. Therefore, in the past year, although the market has seen greater volatility, sectors with low valuations and high dividend yields have been more sought after by investors. In the next step, if the market can usher in an upward trend and the market's risk appetite has improved, some traditional white horse stocks will usher in an opportunity for valuation repair. When the market reaches the middle and late stages of the market, growth stocks will become the leading sectors of the market, so at different stages, there are certain rules to follow in the rotation of market plates.
Now in the medium and long term, the market is still in the area near the historical bottom, the price-earnings ratio of the CSI 300 is only about 12 times, and there is still a lot of room for growth compared with the historical average of 18 times, and the lowest valuation in history is about 10 times, which shows that the current market valuation is still low. Although Hong Kong stocks have rebounded more than 20% from the bottom and entered a technical bull market, the valuations of Hong Kong stock indexes are still well below historical averages. All these show that the current market of A-shares and Hong Kong stocks is still in the first stage of rebounding from the bottom, and has not entered the second stage, and it will take some time for the market's confidence to recover.
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Yang Delong: International capital flows are shifting to A-shares and Hong Kong stocks to usher in the right side of the opportunity to build positions
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Yang Delong: The essence of Warren Buffett's value investing philosophy
Yang Delong: Warren Buffett stubbornly insists on investing in the circle of competence and pays attention to new technologies such as AI but does not invest blindly
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Yang Delong: Adhere to the concept of value investment and grow together with great enterprises
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Yang Delong: The new "National Nine Articles" lay the foundation for the construction of a high-quality capital market and is expected to open a round of slow bull and long bull market
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Yang Delong: In the long run, patiently holding and accumulating good stocks is the best way for ordinary people to accumulate wealth