"Value Investing 3.0": Seek more advice, communicate more, explore more, summarize more

Comprehensive from red and green.

Editor's note:

As long-term investors, the priority we should consider is very clear, only one: high-quality companies, high-quality companies, or high-quality companies. We should steadily and disciplinedly strive to identify, buy, and hold stocks of high-quality companies.

When it comes to finding top-notch stock investment ideas, you should already know where to start: your actual life experience. You also know how to end: by analyzing the business, management, and price of companies one by one according to the BMP stock selection checklist (as shown in Figure 1, BMP stands for Business, Management, Price).

However, the time between the beginning and the end is quite long. If you still cannot determine whether to invest in a company, what should you do? And after analyzing and making investment decisions, what should you do next? In other words, what should be the complete investment process of a successful stock investor in the early 21st century?

In the spirit of rules, discipline, and process, Adam Seessel, an investor and full-time fund manager, provides some practical advice to stock investors in his new book "Value Investing 3.0". These suggestions can help you establish some good work habits, which are what support Russell's investment work smoothly every day.

1. Act fast, but don't rush

"Act fast, but don't rush." This is a famous saying by American college basketball coach John Wooden. This statement is widely applicable to all aspects of our lives, including stock investments.

After finding a good stock investment idea, don't rush to put all your money into it, betting everything on this one stock. You should use the research and analysis process commonly used by value investors, be rigorous and patient, and step by step conduct comprehensive and in-depth analysis. Since Benjamin Graham founded value investing, many value investors have been using this value investing analysis process for over 100 years. Now, you can choose to follow the BMP stock selection checklist introduced in "Value Investing 3.0", researching one question after another, always remember to stay calm, calm, and calm again, don't let excessive excitement affect your rational judgment.

Figure 1. BMP Stock Selection Checklist Image Source: CITIC Publishing Group's "Value Investing 3.0"

Note: BMP stands for Business, Management, Price, the initials of the three words.

People conducting investment research and analysis should be like scientists, calm, calm, and calm again, rational, rational, and rational again, analyzing, analyzing, and analyzing again. When Darwin constructed the theory of evolution, he focused more on data that refuted rather than confirmed his arguments. Darwin knew that only by being particularly strict with himself could he build the most compelling evidence

2. Ask more, communicate more, explore more, summarize more

If you want to profit from stock investment in the digital economy, you should make good use of your own life experiences, but you should not limit yourself to just that. You should also make good use of other people's life experiences, which will greatly expand your circle of abilities. Friends, relatives, colleagues - all these people can help you come up with good investment ideas and help you draw good investment analysis conclusions.

If you are a salesperson, you can ask your colleagues about their opinions on Salesforce's financial management software, how it compares to other similar software, and see if their perceived competitive advantages align with yours.

By conducting more investigations, asking more questions, and communicating more, your stock research will become more comprehensive and in-depth. Over time, the magical power of compounding will start to take effect. Not only will your wealth accumulate rapidly like a snowball, but your knowledge and network will also grow rapidly like a snowball.

3. Read more, and read a lot

Buffett carefully schedules his day for a reason. Buffett sets aside several hours every day for reading. You should also follow Buffett's example and allocate a large chunk of time for deep reading. To deeply understand the investment field, you must ensure that you have a fixed large block of time each day for extensive reading, including newspapers, journals, blogs, company announcements, business and investment books, and more.

Reading will give you a wealth of investment ideas. These investment ideas will converge into a river in your mind. You dive into this river and let yourself drift in the water. Multiple investment ideas collide in your mind, which is important for generating new investment ideas and for fully understanding the companies you hold shares in.

4. Exploit market folly, invest contrarianly

I wouldn't advise you to wait for a crisis to invest in the stocks of excellent companies you've identified.

If after research and analysis, you believe that a company's business quality, management quality, and stock price are suitable, then it's appropriate to act now. Buffett almost gave up acquiring See's Candies because both sides were haggling over a few million dollars. I can tell you, when stock prices plummet, all news is bad news, and it's never easy to invest in the stock market at this time, buying the stocks of the companies you choose. Jeremy Grantham described this process very accurately: "In a stock market crash, panic, add positions, and add positions again."

Practice slowly, over time and with repetition, you will train yourself to gradually learn to do this.

5. Do not diversify investments, concentrate investments highly

Modern portfolio theory is very popular in academia, advocating for diversification, but Buffett and Peter Lynch scoff at it. Peter Lynch says that this mindless diversification is actually "diworsification," and he's absolutely right. A diversified investment portfolio consisting of 100 mediocre quality stocks will only produce diversified but overall mediocre investment performance I suggest that you do not diversify your investments, but concentrate them highly, fully utilize your personal strengths, and seek out good companies in the industry that truly excel. Use the BMP stock selection analysis framework to study each company one by one, analyze each issue one by one. Once you have identified which companies' stocks pass the test, buy a large amount immediately and then hold for the long term.

Andrew Carnegie said at the graduation ceremony of the Pittsburgh Business School in 1885: "Do not put all your eggs in one basket, this traditional saying is completely wrong. I tell you, the correct approach is to put all your eggs in one basket, and then take good care of this basket."

Six, Concentrate, Concentrate, and Concentrate Again

Some people cannot bear the immense psychological pressure brought by concentrated investments. Many people cannot bring themselves to put all their funds into just one basket like Apple or Amazon stocks in the early stages. Most people do not have the confidence to invest all their life savings in a few stocks. That's normal, it's okay, just concentrate as much as possible. You can only experience and feel it in actual investment operations, gradually finding the minimum number of stocks that suits you.

However, there is a method that can accelerate your process of concentrated investment, and that is the three questions of retirement investment planning. You can take out a piece of paper, ask yourself three questions, roughly plan your retirement investment allocation.

First question: How much money have you saved for retirement in total?

Second question: After deducting your daily living expenses from your monthly salary income, how much spare money do you have left for investing in stocks?

Third question: Out of the retirement savings and the portion of income that can be freely allocated from your salary, what proportion of these two funds will you use to invest in a few high-quality companies' stocks that you have high confidence in, and feel more secure and at ease?

Calculate carefully, let the numbers speak.

Seven, Long Term, Long Term, and Long Term Again, Add Positions, Add Positions, and Add Positions Again

Peter Lynch is very confident that amateur investors can do quite well in stock investments on their own, one of the main reasons being: unlike fund managers, amateur investors do not need to report short-term performance to anyone. Without publicly comparing short-term performance with peers, amateur investors can focus on long-term performance, focusing on finding high-growth companies, those that can grow continuously like a snowball for many years.

As a professional investor, I can tell you that what Peter Lynch said is absolutely correct. Fund managers really struggle to balance long-term and short-term performance, a good stock may have a very good long-term performance expectation for the next 3 years, but a poor short-term performance expectation for the next 3 months, which can disrupt the fund manager's annual performance ranking.

As long-term investors, the only thing we should prioritize is very clear, there is only one: high-quality companies, high-quality companies, still high-quality companies. We should steadily and disciplinedly strive to identify, buy, and hold stocks of high-quality companies.