Qu Yanli | wen
Li Heng is a man of many thoughts.
This makes him seem a little special: he sometimes has metaphysical speculation about investment, rather than being limited to the momentary matter.
He's tired of rules and regulations—rules that seem to be conventional, such as core assets, clinging, value investing, etc.—and he's wary of simple and crude labels. For some mass cognition, or the stage of thinking in the capital market, he first remained estranged, and then repeatedly pondered and had his own ideas.
He repeatedly emphasized a truth: to really understand a thing and have insights, it takes a lot of effort, and it is more difficult than many people think.
This is the state in which Li Heng is, pursuing the depth of thinking. "I'm relatively good at thinking about a problem slowly and continuously, not very quickly." He concluded.
Picky stock picks
"Are you a picky person?"
"Very picky." Li Heng answered.
In a three-hour interview, Li Hengcai slowly unfolded the true picture of his stock selection criteria.
When asked randomly about a heavy stock in Cathay Jinma,000, a vinegar industry H, Li Heng began to chat: the direction of vinegar is determined, but the growth curve is relatively smooth, "This is the reason why he buys not too much, but not too little." ”
The taste of vinegar is different from place to place, and China's famous vinegar is sour but not astringent, fragrant and slightly sweet, and the appeal is complex. Compared with soy sauce, consumers have a single demand for soy sauce, just fresh, and the first competitive advantage of large soy sauce factories is cost leadership.
He thought very carefully, very carefully.
"From a methodological point of view, it is the negation of negation, a process of spiraling thinking." Li Heng describes slow thinking about excess cognition, which can last for years.
As for liquor, he made no secret of it: "Because liquor is so good, once the standards are compared with each other, you will find that such investment opportunities are too dreamy." ”
These recognized top investment opportunities, Li Heng excavated early on. In 2015, he discussed liquor with consumer researchers, and everyone "had a sarcastic and sarcastic look at liquor." ”
In mid-2018, Li Heng bought a construction machinery faucet and re-positioned it so far, making a lot of profits because "it is in the process of spiraling up the relative competitive advantage". At that time, others thought it was the top, he thought it was the bottom.
For those good companies that are truly convinced and meet his standards, he is eager to buy them fully, and the concentration of individual stocks is relatively high until the upper limit of shareholding.
So, he thinks a lot because there are very few shots.
Taking Cathay Jinma As an example, the average holding cycle of the top ten heavy stocks is 5 quarters, of which 7 stocks have been held for more than 8 quarters, and 3 stocks have been held for 15 consecutive quarters, with a long holding cycle.
Li Heng's representative work, Cathay Golden Horse Steady, has been managed since January 26, 2017, with a total return of 165.36% and an annualized return of 26.31%. In the past 5 years, the performance ranked first in the same category. (wind, as of March 31, 2021, the relevant performance data has been reviewed by the custodian bank, and Cathay Jinma Prudential is a partial stock fund (stock cap 95%) (Class A))
Guotai boom industry, Li Heng since May 10, 2017 management, the total return of 133.08%, the annualized return of 24.28%. (wind, as of March 31, 2021, the relevant performance data has been reviewed by the custodian bank)
On May 17, Cathay Pacific's core values, helmed by Li Heng, were officially issued, with a holding period of two years, and A shares and Hong Kong stocks were fully covered.
Investment thinking and discernment
In the interview, Li Heng shared his recent thoughts on the capital market. There are four points:
The first point is the misunderstanding of popular thinking.
A certain type of stock, sometimes considered a value investment, sometimes considered a group, is actually the same kind of thinking.
Suppose one person has owned a company since five years ago and another person bought it in the process of rising, both may be considered value investments. When the market is not performing well, the people who have been holding it and the people who have just bought it are also holding it, and both of them may be considered to be holding together.
For the public, this is simple and intuitive thinking, but the complexity behind it is far greater than this.
"Evaluation is only valuable if you have a deep understanding of a factor and think about it for a long time." Li Heng said that before this, how the public thinks and how authorities think may be a burden.
Especially in the capital market, there are often specious, seemingly non-understanding, vague things, misled by mainstream consciousness, which is normal. Thinking in a labeled way is concise and dangerous.
Therefore, research and investment, to seek truth from facts, the truth is how it is.
The second point, insight, can take a long time.
It doesn't take long to understand something, but it usually takes years to have real over-recognition.
The dedication to a good company is nothing more than the recognition of recent years. The capital market has gone through many stages: four or five years ago, the mainstream aesthetic was small and baseless, "appealing", before it was the stock game, and before that, it was the cyclical rotation of opening and closing. Now it has become a white horse stock equals value investment, and excessive concentration has become a group.
The above is just a phased market description. To truly understand a company, it takes a long time of objective thinking. Understand some, but not in-depth, can not achieve rigorous and objective comments, opinions are easy to bias.
In fact, every company is very different, and there are very few companies that are really worth holding for a long time, whether it has been labeled as a white horse, a value investment, or a group. Labels are only because they are bought or sold or gamed by a certain group of people in the same way.
Third, investing is something very subjective.
Human subjectivity cannot thoroughly recognize objective things. An investment outcome, which does not even depend on how it is per se, depends mainly on how much one understands itself.
Therefore, everyone should pay more attention to whether their cognitive logic is self-consistent, whether they can convince themselves to the greatest extent, and in the process of practice, it is even more important than how many investment opportunities there are in the world.
"Some things aren't that good, but you know it well and it could be a great investment opportunity." Other things are very good, but your lack of awareness may not be good. Li Heng said.
The first step in evaluating a thing is how objective it looks, the second step is how much human subjectivity can know about it, and the third step is how much you can know about it.
The fourth point, over-recognition, is more difficult than many people think.
Investing by luck can be successful in the short term, even for several years. But in fact, the effort required to accurately and objectively evaluate a thing is beyond the public perception.
Long-term thinking about a company depends on fate, needs to experience different environments, and constantly evolves its own thinking ability, and the evaluation is relatively accurate.
Dialogue with Li Heng
Q: What is the root of your ideas?
Li Heng: At the bottom of my thinking, there is not much to frame myself. Evaluate a thing, start from the actual situation, and think about the problem.
Q: You like to think about a lot of things?
Li Heng: Right. The talents of people are not the same, and I am relatively good at thinking about a problem slowly and continuously, not at thinking quickly.
Q: What is it like to have this kind of slow thinking, or the acquisition of excess cognition, to learn about a company for years?
Li Heng: From a methodological point of view, it is the negation of negation, a process of spiraling upgrading of thinking.
This negation may not be what is right and what is wrong in the simple sense, but an escalation, like the theory of relativity replacing classical mechanics.
Q: Can you give an example?
Li Heng: This is true of any stock. At the beginning, the cognition was superficial, reading reports, listening to the evaluation of researchers, understanding the business model, when carefully studied for a period of time, in order to find out the reason for its stage performance, but this reason is still one-sided.
For example, at a certain stage, the A factor accounts for a relatively large proportion, that is, the main contradiction, but in fact the main contradiction will change, and it will be different in a few years, which means that behind the main contradiction you understand, there are longer-term clues throughout the process.
The best of the best
Q: Do you prefer big spending?
Li Heng: From the result point of view, the company that contacts the C-end can make the business model bigger.
Q: Why buy vinegar?
Li Heng: It's not too much to buy, and it's not too little. This belongs to a company that I have never figured out how much to buy. If a company is good enough, I will buy it all.
Q: Where are the points that are not so good?
Li Heng: The direction is determined, the growth curve is relatively smooth, determined by the business model.
How big the space is, is the first. In addition to space, there is also a growth curve, some with explosiveness, such as social network giants, from the launch of WeChat to the use of the whole country, only a few years; such as high-end liquor, relatively slow, but still can, including all high-end users in the country, the process of up to one or two decades, the curve slope is not as good as social networks; such as banks, it is slower, a bank's retail business will bring all high-quality customers into its own system, it takes a long time, and the conversion cost is very high.
Vinegar grows slower than wine. Vinegar has two characteristics: First, the taste of vinegar is different in different places, and it takes a long time for local tastes to change. Compared with liquor, most people actually can't drink wine well, reflect the grade in a banquet, expensive is enough, simple and rough, easy to spread. Vinegar spreads much less efficiently.
Compared with soy sauce, consumers have a single appeal to soy sauce, that is, fresh. Why can Guangdong's big soy sauce factory lead? Its growth curve is at least ten years ahead of vinegar, and the production process and scale of the big soy sauce factory determines that the fresher soy sauce is made at a lower cost, and the cost advantage is the first.
The study of China's famous vinegar, Shanxi vinegar, Zhenjiang vinegar, sour but not astringent, fragrant and slightly sweet, several flavors together, the appeal is more complex than soy sauce, resulting in the curve of consumption upgrading backwards, the slope is relatively low, in a longer period of time to maintain a certain range of growth, not explosive.
These are all matters of detail in investing.
Q: Isn't it because when you bought it at the time, the valuation was much cheaper than soy sauce?
Li Heng: Cheap is not the starting point, better than others is. One asset is less expensive than another is never a reason to buy, only two assets are similar in other situations, and cheap is the reason to buy.
Q: Your shareholding concentration is relatively high, and a good company is eager to buy it, such as liquor, home appliances, construction machinery and so on.
Li Heng: Because liquor is so good, once the standards are compared with each other, you will find that such investment opportunities are too dreamy and too few.
Q: Many people think that buying liquor is like a fund manager lying down to win.
Li Heng: It seems that lying down to win is only a matter of nearly a year or two. In 2015, I went to a consumer researcher to discuss liquor, and no one looked at it, with a sarcastic and sarcastic look.
Q: When did you start to realize it was dreamy?
Li Heng: I have always bought, starting from the management of the special account in 2015, and bought a lot after transferring to the National Tai Fund in 2017.
Because repeated comparisons and can't find something better are what the change of time tells you.
Q: A construction machinery leader was initially considered a cyclical stock, but now the logic of stock substitution is very clear.
Li Heng: When I first started buying, I remember very clearly, in 2018, I went to investigate a dealer of construction machinery, and after the end, I took the subway with a private equity researcher, when he said that the industry was at the top, and the market was not very good that year.
I calculated, according to the cumulative sales volume and depreciation cycle of the past years, the annual update demand is close to the sales volume, not to mention the subsequent growth of fixed asset expenditure, I think that is the bottom.
Q: Is your characteristic of being able to see something very early that no one else sees?
Li Heng: The logic of stock substitution can be seen by everyone, but whether or not you have carefully considered it.
It's just a margin of safety, it's a prerequisite for buying, and the real reason I'm buying is that it's in the process of spiraling up relative competitive advantage. The scale advantage of manufacturing is a powerful moat that can almost be compared with consumer goods brands.
When the scale is large enough, the cost is lowered, the relative competitiveness will be more obvious, to a certain extent there will even be the pricing power of the industry, this is the core logic, but also I have been thinking about the point of a construction machinery leader, its pricing power to what extent.
Q: You can dig up these tickets very early.
Li Heng: I first excavated an eye hospital, ten years ago, when I was a researcher, but then I made a big mistake.
For a long time after being a public fund manager, I wanted to buy something that was not so expensive in apparent valuation, such as banks, etc., and then I found that in the era we are in, it is more important to evaluate how cheap a company's price is, and often not spend more time to evaluate how good it is.
Later, in my priority, it was more important to buy well than to buy cheap.
Q: What was your mental journey in studying an eye hospital?
Li Heng: In order to figure out the situation of each hospital, go one by one, take a notebook to count the number of beds, and walk to measure the area of the hospital. I made a big table, when the hospital was built, the geographical location, the population covered, the floor area, the construction area, the investment situation, the amount of revenue and profitability, the position of the core doctors in the local area, the number of beds, and the number of doctors and nurses.
Later, I made a mistake: although I was sure of the long-term space, since you were so expensive, I would first buy cheap and the company was good. This mistake was not corrected until very late. I studied this company very early, but my understanding is still not deep enough, and there are flaws in the angle. More importantly, there is no patience.
Q: You said that the good company does not care about the price, in fact, from the perspective of the results of the position, you are very concerned about the price, and the overall valuation is restrained.
Li Heng: It is true that the price is not important, but the premise is that it is the best company. For most companies, I don't have the ability to assess whether it's this type or not, and I'll be a little more cautious.
There is no doubt that the worse the asset quality, the more important the price, like Graham's "cigarette butt picking up." Price is a protection against insufficient research, or insufficient asset quality.
Q: Can a certain electronic component faucet meet your stock selection standards?
Li Heng: Far from it, I have never bought it.
Both companies earn 12% per year. First, by the end of the year, 12 percent can be taken away in its entirety. Second, 12 per cent must be invested in new plants and equipment. A certain electrical component leader is the latter, the scale has been expanding, but like a startup, it is still in continuous spending, it is possible, but I am a very cautious person, do not want to understand the first do not buy.
The public believes that a certain electrical component leader, a certain security stock, a high-end liquor, is the same type of company, "a mao" label, in fact, far from it.
Q: For example, if you buy a bank, it is okay for you to buy a few more banks at this point in time, but you only buy a certain bank leader, and you also buy the tenth largest heavy stock.
Li Heng: In fact, it has been held for three or four years, and it is not particularly heavy. Recently, it has mainly risen into the top ten. To be fair, the long-term direction of good banks is good, but the shortcomings are also obvious, affecting the growth curve.
Think more, shoot less
Q: You think so much, in fact, because you don't shoot too much?
Li Heng: Yes, there are fewer transactions, don't rush to shoot, think about it and then do it.
Q: According to the data of the Daily Fund Network, you are basically in the top quartile in the bull market, and in the bear market, it may be the top half, and there is no deliberate control?
Li Heng: I don't know when it will be a bear market, when it will be a bull market, I haven't thought about this question, regardless of bulls and bears.
Q: So you gave up something?
Li Heng: That's for sure, I gave up a lot, and the core basis for decision-making is the underlying asset quality.
Q: Are you a picky person?
Li Heng: Very picky.
Q: Don't you look for poor expectations? Completely disregarded for trading opportunities?
Li Heng: I don't do game and trading opportunities. All my investments are based on the perception of the underlying asset, which is worth buying, worth holding for a long time, just holding; not as good as expected, or buying the wrong one, just replace.
There are only the above two situations, there is no gap between the public's cognition and my cognition, do not consider the problem from this point, only depends on the quality of the underlying assets.
Q: You seem to have a lot of ideas about value investing.
Li Heng: The mature thinking that has appeared is a tool, not a rule.
Investment is to invest based on intrinsic value, speculation is to speculate on the supply and demand relationship of chips, so investment is value investment, this is my personal opinion. Buffett has only talked about value investing once, and he says very clearly that those two words are superfluous.
To make an investment is to consider how much free cash flow can be contributed to shareholders in the long run, which is a measure of intrinsic value.
There is a mainstream misunderstanding in investment, as if everyone wants to seize every opportunity, in fact, seizing an investment opportunity depends on a certain fate.
It is often more difficult to really do a good job than imagined. For most people, it's just one thing to do consistently, but finding it takes time.
Regardless of anyone, the end result must be that a small number of companies make the majority of money, and most companies contribute a small part of the revenue or no income.
Q: What are your stock selection criteria? How do you get to your buying point?
Li Heng: I want to find something better, not an objective line, buy it on this line, and don't buy it under this line. My portfolio, constantly evaluating it, find better assets to fill in.
Q: Throughout your investment career, are there any obvious nodes where there is a change in the way you think?
Li Heng: As a special account investment manager in 2015, I was swayed by the huge fluctuations in the market, and I did not dare to participate in a very low position. While dodging volatility, looking long enough, I realized that if you're willing to hold a better company, you'll make more of a profit.
There are many things that belong to the times, and there are them at every stage, but there are really very few good things that are really scarce, and this realization is better than a year.
Q: Does the market's phased trend of thought really have no impact on you?
Li Heng: Recently, some people say buy low valuation, some people say buy second- and third-line blue chips. I don't think it's worth much in practice, because a certain type of good asset is more expensive, and it's not a very high-quality strategy to be forced to buy new things and have to do it as a last resort. A quality strategy must be to discover good assets.
The market as a whole, most of the cheap companies are not very good, your companies are relatively good, specific to individual stocks, the difference is very large.
Some small market cap/second- and third-tier companies, I've been looking for that too. But from an objective point of view, it is impossible to find ten companies within a year or two that are better than the existing positions, which is unrealistic.
I'd rather be conservative, even if I try to accept a relatively low expected yield at a certain stage, rather than being forced to buy something that hasn't risen yet.
Q: Do you think people should maintain a sense of alienation from the market?
Li Heng: I don't deliberately keep it, nor do I deliberately approach it. For institutional investors, it may be better to deliberately alienate a little, because there is enough daily exposure.