Finding good companies that can ride through economic cycles and bull and bear cycles is the most important thing in investing

Recently, the Shanghai and Shenzhen markets continue to maintain the trend of shock adjustment, and the market has repeatedly fluctuated between 2900~3000 points, indicating that market confidence is still insufficient and more favorable policies are needed to boost.

Yesterday, the central bank announced a cut in the reverse repo rate as well as the LPR rate, including the one-year and five-year LPR rates, both by 10 basis points. Although the rate cut is not very strong, it sends a positive signal that the interest rate will be cut immediately after the central meeting. This shows that in terms of monetary policy objectives, in addition to stabilizing the RMB exchange rate, stabilizing growth is also an important policy goal. The reduction of one-year and five-year LPR interest rates has a significant positive effect on the property market and reduces the interest burden of home buyers. It also has a lower effect on the interest rate of existing mortgage loans, which can play a role in stabilizing the property market to a certain extent. Of course, at present, the intensity of interest rate cuts is not enough to reverse investors' expectations, so the central bank may continue to adopt a more accommodative monetary policy in the next step, including continuing to cut the reserve requirement ratio and interest rates. For the capital market, the current lack of market confidence is mainly due to the lack of confidence in the growth of all walks of life, and the steady growth policy is expected to continue to increase.

At a time when economic growth is slowing, fiscal policy is likely to play a more important role. There is a very subtle metaphor in macroeconomic textbooks, that is, when the economy is overheated, monetary policy is used to cool the economy, and the effect is immediate. For example, it is relatively easy to cool down economic activity by raising interest rates and raising the reserve requirement ratio, just like a horse pulling a cart away with the reins. However, when economic growth slows down and investor confidence is low, the effect of using monetary policy to stimulate the economic rebound will not be obvious. Just like a horse can't reverse the wheel with the reins, because even if the central bank lowers interest rates very low, if investors are not confident about the future and are unwilling to take out loans to buy houses, or if business owners are unwilling to take out loans to expand reproduction, then fiscal policy needs to come into play.

Fiscal policy includes many aspects, such as increasing government investment to make up for the lack of private investment, increase investment growth, and at the same time create more employment opportunities and drive economic recovery. On the other hand, it is necessary to directly boost consumption through the issuance of consumption vouchers or vouchers. For low- and middle-income people, the issuance of vouchers is a better measure, which can directly stimulate consumption. Because the consumption propensity of low- and middle-income people is very high, according to the research of economics, most of the increased income of low- and middle-income people will be used for consumption, that is to say, for people with lower incomes, the higher the marginal consumption propensity, so for low- and middle-income people, it is a better measure to issue consumption subsidies at designated points. In order to encourage childbirth, we can also consider giving fixed-point subsidies to childbearing families, which can also drive related consumption, and at the same time can change the negative population growth by encouraging childbirth, which is beneficial to the long-term development of many industries.

In the past, fiscal policy focused on investment, but now many economists, including me, are calling for future fiscal policy to be inclined to boost consumption, because boosting consumption can directly boost demand and fundamentally get out of the dilemma of contraction. Helped many industries get back into a state of expansion. Of course, it is very important to increase consumption is to increase the property income of residents, Chinese investors actually invest in a relatively single channel, in addition to buying a house, most of them are buying stocks and funds, so stabilizing the property market, stabilizing housing prices and boosting the stock market have become the most important means to produce wealth effect. The stock market is not only a barometer of the economy, but in turn can affect the real economy. A prosperous stock market can feed back the real economy, support the development of more scientific and technological innovation enterprises, and promote the development of new quality productive forces, and building a prosperous capital market is the only way to build a financial power. Therefore, in order to find ways to boost the performance of the stock market, it is recommended that the national team not only support the bottom 3,000 points, but also further pull up by 20% to form a bull market trend, so as to attract over-the-counter funds. Because most investors are right-sided traders, they will only enter the market after the market trend is established, and many investors are afraid to enter the market when the market is volatile and the bottom is probed.

Now is also the time to advocate the concept of value investment, often when the market is in a downturn in confidence, many high-quality assets are undervalued, and now they are seriously undervalued, and the price of many high-quality stocks is only three or four folds of the high. When we make investments, we must turn to value investing, that is, we are not investing in a string of symbols, but in the equity of a company, and when we buy a stock, we buy a part of the company.

Warren Buffett has always emphasized the need to grow with great companies, and he said that in all companies, all kinds of changes occur every week, every month, and every year, but the real thing is to find the right company. A classic example of this is Coca-Cola, which went public in 1919 at $40 a share, and the next year the stock price fell to $19 a share, and if you buy it when the company goes public, you lose half of your wealth a year later. However, if you carry it, hold it to the present day, and reinvest all the dividends, it is worth about $1.8 million. Warren Buffett said that he has been through depressions, he has been through wars, sugar prices have fluctuated, thousands of things have happened, but good companies can continue to grow for 20 or 30 years, and even become a century-old store, and after you buy it, you just go home and sit back and let the managers do their thing. Warren Buffett gave the example of Coca-Cola to show everyone that stocks are very reliable investments, provided that you really invest, don't gamble, don't borrow money, and don't use leverage. Warren Buffett said that we always think of stocks as part of the company's equity, and stocks represent part of the company's ownership.

Stocks are liquid and quotes are quoted every minute, and people have the attitude that they have to be able to control the stock price every minute, but when you think about it, it's actually a very ignorant idea. In 1949, Warren Buffett read Graham's book "The Smart Investor" to get the hang of it, he understood a particularly important truth, stocks represent the company's equity, not the red candle and green candle on the K-line chart, by learning Buffett's value investment, we must change the concept, through the market downturn to lay out good stocks, good funds, to be a shareholder of high-quality companies, and wait patiently for the return of value. We believe that there is no shortage of good companies in the A-share market that can go through the economic cycle and the bull and bear cycle, and their stock prices will reflect its value in the long run. So now is a good time to do value investing, and it's also a good time to get excess returns.

(The author is the chief economist and fund manager of Qianhai Open Source)