This book is a reading note for “The Essence of Investment-A Stable and Balanced Investment Strategy”
What kind of stock is a good stock
A stock represents a company. So this question can be replaced by: What kind of company investment should I choose?
The common view is of course to choose large companies, companies with high profit margins and stable income for a long time. However, there are many such large companies, but only a few can really be bought. How to choose the best?
The key depends on the industry itself.
Some enterprises are developing fast, that is due to the industry. Some enterprises develop fast, that is the vision of leaders. Of course, the development of an enterprise requires many factors, but if it can only be attributed to one major factor, it needs clear judgment by stock pickers.
Therefore, it is very important to choose a company that is in the “development” stage.
There is no need to talk about common industries. There are also some industries that do not seem to be developing very fast on the surface, but are actually very promising. Companies in these industries can also be considered. As for how to judge the potential, this is the judgment of the general trend of economic development, which will be detailed later.
The development of some enterprises is indeed very noticeable, but the cash flow is insufficient, that is, the ability to resist risks is insufficient. In this way, once an unpredictable external force is encountered, it will inevitably be worrying.
Therefore, a well-developed company should have good cash flow in the financial statements for a period of time, such as ten or twenty years.
According to scientific research, it is difficult for human abilities to break through in a short time. Therefore, judging a person’s performance in three or five years, there is a high probability that he can predict his life in the next year or two.
Enterprises are also made up of people. Therefore, research on the career development path of “key employees” in an enterprise can also be helpful for stock selection.
If you want more reliable long-term income, you must divide your investment portfolio into several parts.
One is a very optimistic industry and company, with great grasp, which can be reduced to 50% of the total investment
The second is that the company is worth investing, but the industry has not developed very surprisingly for a while, it can account for 30% of the total investment
The third is that neither the company nor the industry has a very attractive performance, but for other analysis, companies with great risks and of course more income can only account for 20%.
Moreover, the bull market needs to eat full positions, and the bear market invests cautiously, it is best to invest only 50-60% of the total cost.
From the company’s financial statements, a holistic analysis can be made through the financial perspective. For example, analyze whether “the company’s profit margin has changed significantly in ten years”. If most of the indicators in its financial statements are appropriate, you need to predict whether the industry will still have an advantage in two or three years. Because some companies may have done well in the past ten years, but because of the development of new technologies, their original advantages will be turned into disadvantages, and profits will fall steeply. This needs to be avoided.
Of course, it is difficult for ordinary people to find an industry at random to judge its future, so it is necessary to analyze from the upstream and downstream industries of the industry that we know best in our work.
The analysis at this time can draw on the means of strategic consulting and devote two weeks of time to the amateur to write an industry research report for yourself. The purpose of the report can be similar: whether this industry is worth investing in. If you invest, how long can you get a satisfactory return.
For example, at the end of the report, you can write: a certain industry, you can buy one of the leading stocks, after three months, it is predicted that its stock price will rise by 30%. That is: after three months, the investment will have a 30% return on capital.
Unless it is a master of short-term speculation. Otherwise, for most people, mid- to long-term investment is more advantageous.
If you do n’t know if you bought a stock, or if you are sure whether it can rise to a certain level within a few months, you are buying by speculation. Win by guessing, too small to grasp.
For medium and long-term investments, the psychological expectation is that there will be considerable returns, and it will not be affected by some normal small fluctuations. Without always changing the stock, your heart will be quiet. With tranquility, it is easy to see the general trend of the industry development, and it is easy to choose the standard.
If you always exchange stocks, one will affect your daily life, and the other is that you will lack sufficient research time. If the research is not thorough enough, it will buy more randomly, and the profitability is less.