After 10 years, which companies will still be around according to Duan Yongping?

This article is a compilation from the YY Hong Kong Stock Circle.

Recently, Duan Yongping initiated a discussion on social media. Among companies with annual profits exceeding $1 billion USD/¥5 billion RMB, which companies do you think will have higher total profits in the next 10 years compared to the past 10 years? And which companies do you believe will have more profits in the next 10-20 years than in the following 10 years?

Duan Yongping mentioned that when considering which companies will make more money in the next 10 years than in the past 10 years, it is natural to focus on the business model. This is how he evaluates companies, it's his way of thinking.

Duan Yongping admitted that he is familiar with only a few companies. Among the companies he is familiar with, companies that may have higher total profits in the next 10 years compared to the past 10 years include: Apple, TENCENT, Moutai, Berkshire Hathaway, Microsoft, Alphabet-C. Pinduoduo could also be considered, but that's because Pinduoduo hasn't made much money in the past 10 years. Consumer goods companies like McDonald's and Coca-Cola are likely to beat inflation, so they should be considered as well. As for 20 years later, Apple, Moutai, Microsoft, Alphabet-C, and TENCENT are likely to still be around.

This is an intellectual game to help with investments. Which other companies do you think will do better in 10 or even 20 years?

I. The Importance of Business Models

Firstly, in the past 10-20 years, companies that have been able to withstand cycles and generate significant long-term returns are inseparable from excellent business models. For example, Apple, TENCENT, Moutai, Salesforce, NVIDIA, and others. The business model is also the primary consideration for Buffett's value investing philosophy.

Buffett considers three criteria for investing in a company:

1. Invest in businesses that you can understand, within your circle of competence.

Many companies have shown significant long-term growth. Whenever the media asks Buffett why he doesn't invest in a particular company, he candidly admits that he doesn't understand many companies. Because he doesn't understand them, it's challenging to predict whether the company will make more money in 10 years, or to estimate future dividends.

1. Does the company have a strong moat?

In a speech in 1998, Buffett said, "I don't like easy businesses, easy businesses attract competitors. I like businesses with moats, I hope for wide and enduring moats, protective economic castles, and an honest lord managing the castle."

When considering a moat, it's essential to understand what key factors keep the castle standing. Is there anything that could make the castle crumble in five, 10, or 20 years? Will the management use cash flow wisely?

Buffett emphasizes that the key to a moat is distinguishing between businesses that require intelligence only once and those that require sustained intelligence, according to Munger and himself.

1. Buffett pays close attention to whether a company's business model can generate stable cash flow and the potential for long-term growth. Cash flow corresponds to the company's dividends and returns, increasing the certainty and safety margin of long-term investments. However, Buffett has also mentioned that if you fully understand a company, there is no need for a safety margin when investing.

So, with the above three conditions in mind, let's take a look at which companies most people believe can thrive better.

2. Which Companies Can Thrive Better?

In fact, the topic of which companies will make more money in the next 10 years has been highly discussed recently on foreign websites. You can consider the companies in the image below, as they are the best in each industry.

Regarding this topic, Duan Yongping has ruled out electric car companies. He believes that in 20 years, both Tesla and other electric car companies will be going through tough times, if they are still around. The issue lies in the moat problem mentioned above. The differentiation of electric cars is smaller than that of gasoline cars, leading to intense price competition. Therefore, in the long run, it is not a good business. However, there may be a few exceptions that do exceptionally well.

This may not need to wait until 20 years later; it may become very apparent even this year.

Just like Tesla's current predicament, the number of competitors is increasing. In the past few years, the market valued companies based on delivery volume, but now the industry has transitioned from rapid growth to maturity. Ultimately, it depends on how much money a company can actually make.

Currently, there are not many electric car companies that can guarantee sustained profitability. Even Tesla, with the highest gross profit margin, has dropped from 28% to 17% in the past two years. It is facing a situation where the valuation cannot be supported, which is also a moat problem. The electric car industry remains highly competitive.

However, assuming that Musk's current deployment of robots and FSD business can be realized, Tesla may have the potential to make more money in the future than before. But solely focusing on the electric car business, the money made in 10-20 years will not be more than now. This may be one of the reasons why Buffett has reduced his holdings in BYD.

Apart from Tesla, Duan Yongping believes that Nintendo's current position is obviously not as strong as it was 30 years ago, and probably not as good as 20 years ago. Therefore, the future of IP companies like Nintendo and Disney is unclear in the long term. They may still exist, but they will not make more money than in the past.

In Duan Yongping's discussion post, there are quite a few companies that are expected to make more money in the next ten years compared to the past ten years.

For example, Apple, Moutai, Microsoft, NVIDIA, AMD, Alphabet-C, Tencent, Moutai, or the three major oil companies in A-shares, as well as China Mobile. In these companies, they can be divided into two camps. On one hand, technological innovation is expected to generate more profits in the next 10 years than in the past. For example, with the AI wave approaching, companies like Apple, Microsoft, NVIDIA, Alphabet Inc., and AMD are likely to make more money in the coming decade. On the other hand, there are companies that focus on stable annual growth or long-term dividend and buyback strategies.

However, when it comes to companies that may earn more money in the next 10-20 years than in the next decade, there are not many. This is because as the cycle lengthens, considerations need to be made regarding the existence of the industry, the necessity of these products in people's lives, and whether the industry as a whole is entering a phase of contraction.

Companies that may achieve this goal include Apple, which dominates the IOS system for smartphones, Maotai, a leader in consumer goods, Microsoft, the provider of computer operating systems, luxury brands with a long history that have weathered several economic cycles such as Hermes and Louis Vuitton, the world's largest tobacco company Philip Morris International, the parent company of Marlboro, and Taiwan Semiconductor Manufacturing Company in the chip industry.

Apart from these companies, we can also look back at Warren Buffett's portfolio changes over the past decade. Buffett's focus in the past decade has been on consumer goods, oil and energy, and bank stocks.

From 2012 to 2022, among Buffett's top ten holdings over the past decade, only Coca-Cola, Kraft Heinz, and American Express remain, with Apple being added in 2016.

If we exclude the top ten holdings, Bank of America has also been a long-term holding for Buffett, with the position gradually increasing in recent years. In 2012, Buffett's second largest holding was Wells Fargo, but over the past 10 years, his investments in bank stocks have shifted from Wells Fargo to U.S. Bancorp, then to Bank of America.

Oil stocks have also been a long-term investment for Buffett, as he started buying oil stocks with strong cash flow and high dividends in 2000. However, none of the oil stocks have been held by Buffett for many years, as he has rotated his investments in several oil companies over the years. For example, he has recently reduced his holdings in Chevron and increased his holdings in Occidental Petroleum.

Therefore, the only major holdings that Buffett has held onto until now are Coca-Cola, Kraft Heinz, and American Express. Based on Buffett's current holdings, it seems that Apple, along with these three companies and oil companies, are his long-term favorites.

What other companies do you think will make more money in the next 10 years than in the past?