On Investment Probability, Rational Certainty

Not to mention the theory of investment, many masters and friends have detailed expositions. Let's talk about our methodology on how to identify companies.

Many friends are jealous and jealous of 10 times stock, which also leads to many people like to hide and dig when the price is low or the market value is low. I saw an article on the snowball, which detailed the number of 10-fold stocks in recent years, and also counted the number of stocks that rose more than 30% every year (the specific statistical results are not clear). The conclusion is that the percentage of ten-fold stocks in the total number of stocks in ten years is much lower than that of 33% every year. That is to say, the probability of the birth of 10-fold shares is poor. Interestingly: if you own a stock that rises 30% a year (excluding those speculated stocks, because the short-term sharp rise overdraws the performance and increases the operational difficulty), the 10-year earnings are 10 times, but the difficulty is much lower than the former. The core and first element of investment is probability. Decomposition of high-difficulty problems into low-difficulty ones is a wise way to think about probability, not the only way.

The first risk of mining or latent 10-fold stocks is the low probability problem. The second risk comes from time.

Too many people have been latent for two or three years for some reason but haven't succeeded. A company in the incubation period is mostly small market value, and the reality is that small companies are often vulnerable to industry fluctuations. The word digging is very vivid. You may dig up gold, or you may have nothing under the soil. Time also has costs. Mining itself has a bit of gambling, which extends to the second core element of investment: rational certainty.

Talk about the core competitiveness of enterprises is also a moat point of personal understanding. Brand is the moat of traditional commerce, but with the emergence of technology and innovation, it is difficult to identify the core competitiveness of an enterprise with traditional commerce, which is often not clear in the clouds. For example, Jobs, Ma Yun, Ma Huateng, Lei Jun, even the senior people in the industry at that time.

They do not understand and agree with their business model, but the reality is that their unique innovation has created their core competitiveness, so the biggest core competitiveness of science and technology and innovation enterprises is their founders. They use their unique personality and business model to make others difficult to imitate and surpass.

Finally, I will talk about some ideas on diversification of investment. Many masters have talked about the importance of diversification: don't put eggs in a basket. But it often overlooks the problem of an era. Master's works are often published before the 1990s. The speed of information circulation in that era was calculated by "days" or "weeks". So what happened after the 1990s? Internet! With the advent of the era of information explosion, information delay and asymmetry are greatly compressed. As long as there is no extreme lack of liquidity in the market, most positions are enough to withstand the emergence of the "black swan". Of course, this goes back to the second core element of investment: rational certainty. If you feel that the underlying stock is "certainty" in a rational situation, you might as well improve your concentration of positions. Of course, the identification of "certainty" is the embodiment of the comprehensive ability of investment. This is the wise man's wisdom.