Smell what? Buffett continuously sells BYD, why does he no longer stick to it after holding it for 14 years? Chase hot stocks or invest in “black holes”, remember to stay away from such stocks

This week, the news that Warren Buffett sold BYD’s H shares twice aroused the market’s high attention. Buying when the cannon rumbles and selling when the horn blows is exactly the buying and selling principle of the stock market gods for trading investment opportunities.

Ordinary investors are easily blinded by the rising share prices of popular stocks, but popular stocks in popular industries are often the source of painful losses for investors. Hot stocks are often expensive, and the valuation itself contains extremely high growth expectations. Once the facts do not match the expectations, the valuation will quickly decline. After the bubble burst, many popular stocks often traded for less than a fraction of what they were at their peak.

In the A-share bull market from 2013 to 2015, the media industry was the most popular stock, but in less than a year after the bubble burst, many media stocks fell by nearly 70%. , the hot media leading stocks at that time fell by nearly 90%; similarly, in the bull market from 2005 to 2007, the stocks with Chinese prefixes were highly sought after, such as China Shipbuilding once reached 300 yuan per share, but in 2008 the stock The stock price has fallen by 80%. Now almost 15 years have passed, and the stock price of China Shipbuilding is still hovering at 26 yuan.

Although there are very few hot stocks that can cross the bulls and bears, such as Amazon, Wal-Mart, Kweichow Moutai, Tencent Holdings and other companies were also hot stocks, but if investors chase hot stocks with excessively high valuations, they have to do a good job for a long time. Mental preparation to go to the bubble.

Chase hot stocks or invest in “black holes”

“As long as you don’t buy stocks with particularly high price-earnings ratios, you will avoid huge pain and huge investment losses. With very few exceptions, a particularly high price-earnings ratio is an obstacle to the rise of stock prices, just as a particularly heavy saddle is an obstacle to running a racehorse. Same.” As legendary fund manager Peter Lynch said, chasing hot stocks is a major source of investor losses.

During the 2013–2015 bull market, the concept of media took off, but tempted investors paid dearly. In the one year since the Shanghai Composite Index hit 5178 in 2015, many leading media stocks have fallen by more than 60%. So far, 7 years have passed, and the share price of some individual stocks is only about a discount of the original high point.

When the bull market broke out in 2015, media stocks also fit the concept of high growth. For example, Huayi Brothers’ three-year net profit compound annual growth rate from 2012 to 2015 was as high as 70%, and Oriental Pearl’s net profit compound annual growth rate from 2012 to 2015 was as high as 80%; The compound annual growth rate of net profit also reached 30%.

The high growth of the media industry has been sought after by the market. From 2012 to 2015, Huayi Brothers, Bainaqiancheng, Zhewen Internet, Wasu Media and many other media stocks rose about 10 times. But in just a year after the bubble burst in 2015, those stocks have all lost more than 50%. Since the middle of 2015, the original leading stocks such as Huayi Brothers and Bainaqiancheng have fallen by more than 90%.

This scene also seems familiar. In the bull market from 2005 to 2007, due to the Olympic concept and other factors, the large-cap stocks with the Chinese prefix were sought after by investors, but after the bubble burst, the Chinese prefix plate became the hardest hit area. Companies such as China Shipbuilding and Aluminum Corporation of China all fell by more than 80% in 2018, and the stock prices of these companies are still far from their original highs.

Don’t Let Popular Stocks Be a Fortune Meat Grinder

Although a few popular stocks have long-term growth ability that satisfies the market, most of the popular stocks will eventually be reduced to ordinary stocks with no features. A popular company usually has a high price-to-earnings ratio, and only if its earnings continue to grow at a high rate in the future can it maintain the high share price investors paid for it in the past.

As John Neff, who ran the Windsor fund for 30 years, put it, some trend investors like to pin their hopes on high-growth companies, but a downturn in any quarter is enough to make the market miserable absolutely. Even if their performance is only one step away from the expected target, and it is conceivable that the final corporate profits will fluctuate greatly, the market will still not give any forgiveness.

“Stocks with high price-to-earnings ratios are very fragile, and the market’s perception of a company can be misplaced by the slightest error in high growth rate expectations. Regardless of the actual difference, this uncertainty alone is enough to hit stock prices hard.” John Neff once said.

With high expectations, investors are also demanding. Once the performance growth of a well-known growth stock is lower than market expectations, investors will speculate that the company’s high growth is no longer. Even if the company’s earnings per share remained the same, if the price-to-earnings ratio dipped from 40 to 10, the stock would plummet by 70%.

It is worth noting that the profit model is not a particularly popular industry. If the homogeneity is strong and the competition is mainly based on price, after the industry peaks, it will face two major consequences, the difficulty of improving profit margins and the return of valuation. A higher valuation chase may face a greater risk of de-bubbling.

Just like in the 1960s, Xerox’s stock was very hot, when the photocopying industry was a mythical industry, and “Xerox” became synonymous with photocopying, but as Japan’s Canon and others entered the photocopying industry, fierce competition Combined with the diversification failure, Xerox’s stock fell 84%.

“If there’s one stock that I avoid buying, it’s the hottest stock in the hottest industry, the kind of stock that everyone pays attention to, every investor in the car or train on their commute to get off work. You will hear people talking about this kind of stock, and the average person often buys this kind of stock because of this strong social pressure.” Peter Lynch once said that popular stocks rise very quickly and will always rise far beyond any valuation. The method can estimate the value, but because the rapid rise of stock prices is only supported by the wishful thinking of investors, and the substantive content of the company’s fundamentals is as thin as air, the hot stocks fall as fast as they rise.（https://twitter.com/uniswap12 ）