Category: Money tips Release Date: 2006-04-25
What do you think to find a good company is only half of a successful investment, buying a good business is not look at the historical price changes, increases, as long as the company is still growing, the valuation is reasonable and even underestimate the range, it is worth buying, but how to determine the value of it?
Be sure to guess
Investment is not an exact science, no matter how hard you study corporate earnings model, the stocks were divided into the type of careful study of figures, the diligence to study, but also whether you know about the company's past, you are not sure of its future what will happen, can only guess.
As a stock-picking investor to do is to grasp the most speculation, rather than blind speculation. Your task is to select the stock and to not too high a price to buy, hold, wait, and then concerned about the information in this enterprise. Buying opportunities should be lower than the value of the price or close to the time, but the emotions are always affect your rational, because the fear, or a decline in the bear market when you can not buy because of greed, a substantial rise in the stock when you dare to buy. In order to avoid the tendency of such sentiments, we are only through the stock price is lower than the value of the time to buy on the stock market price and valuation difference is the margin of safety. In the analysis it is clear you are a business and decided to buy the time (especially in the right to determine when the value has not yet experienced), it should be noted to give a margin of safety.
For an uncertain outlook, the company set aside more than the profit margin of safety should be a company can be expected. As investors, we can do is to persevere in doing analytical work, to find growth companies, according to the safety margin buying, valuation levels are changing with the change in investor sentiment, despite the long-term positive and the fundamental valuation of the same, these feelings we have tried to analyze, but we still can not to predict how other investors in the market for a stock valuation. You can purchase under the margin of safety is expected to return to normal valuation levels, but you can not be expected to have been overestimated to a higher valuation of other investors to buy (this is the pump silly theory).
As an established rule, stock prices should not be higher than the average annual net profit growth rate, that is, PEG ratio of less than 1, while for fast growth in the next few years, an annual net profit of more than 30% of the enterprises, PEG is also should not exceed 1.5 times, because of the high growth rate can valuation has fallen even faster. Assuming a growth rate of 20% of the stock, and now there are 16 times the valuation, we have a certain valuation discount (margin of safety), if the deviation of our judgments, growth somewhat less than we expected, but because buying have a certain discount, the risk is not large; and if growth in line with our expectations even more than the future of this stock valuations can be increased to more than 20 times, coupled with growth gains, your return on investment is very impressive, from the this point, the margin of safety strategy is to move forward and attack or retreat and defend strategy.
Underestimate the value of the stock more secure
Therefore underestimate the value of the stock is always more secure (in addition to periodic rolling stocks), but also prone to large Niugu, and the high valuation of the stock at greater risk. The value of the real damage is that you are 60 times earnings to buy a stock, it can be expected to increase 60% a year, but bought and found it grew by only 10% of investors expect a significant decline in the results of what was deemed worthy of 60 times to buy, now only to 10-fold, while the growth is also inadequate, the final stock price decline will be very fierce. This lesson is that there are many. Especially in the bull market to a certain stage to conduct post-bubble.
In 2000, many investors think that only technology stocks is the high growth stocks. The actual major U.S. technology stocks historical average growth rate (1986-2000) has no idea of the investors 20% -30% growth, in fact, only 9%. So, ultimately, investors in investing in technology stocks suffered huge losses.
Now we are back in a bull market phase, investors may also appear non-rational behavior, if you do not mind the principles of safety margin, once the tide receded, it may be a huge investment losses. All the stocks are not the same, so the safety margin is also very different. For the typical business, look at price-earnings ratio and growth rates, a comparison would be sufficient, but some companies are not looking at the valuation, but also at market levels, such as Luzhou, cash flows very well, China's top 10 wines in the 5 yuan for time, even if the price-earnings ratio look high, but the market is very small, that the status of its members winery is not appropriate. Therefore, at that time regarded as a safety margin. However, the current share price point of view, Luzhou has no margin of safety.
In addition Yangtze Power's performance the next five years, China Southern Airlines than the performance of the next five years, is much easier to predict. The price negotiations have a strong ability to take advantage of market share, demand is relatively steady growth of security companies buying on margin can be lowered. In addition growth can reduce the risk, for example you bought the stock is 30 times the price-earnings ratio, growth 25%, even if the shares fail to rise, one year after the valuation of the stock will fall significantly. The concept of safety margin allows investors became cautious, but others panic, you more optimistic about the greed of others, you be more rational, when the bull market to a certain stage, you will be cautious.
Margin of safety might make you miss a Starbucks, and its 10-year increase of more than 100 times, and perhaps miss Suning Appliance, which it has a huge gain in two years, could be valuation of these stocks has not been cheap. After all, companies like Starbucks do not have much up in the early identification more difficult. Emphasis on security margin is mainly due to pre-listing of two SMEs (Weihai, Qingdao Taihe wide soft-controlled) have an excellent competitive edge, all belong to high-growth stocks, are sought after by investor optimism, but I think the current lack of margin of safety .
