Now, I am increasingly inclined to long-term tracking and holding of a project or a company.
Long-term holding here does not mean never selling, but rather that as long as I approve of its development direction and construction progress, as long as its price is not excessively high, and as long as its fundamentals do not show major hidden risks, I will not be too concerned about short-term price fluctuations and will continue to hold its tokens or stocks.
Among the three "as long as" conditions above, the first two are subjective views of investors, often differing from person to person, and difficult to judge right or wrong.
However, I increasingly feel that the third condition follows an objective pattern that can be learned, especially by learning from numerous classic cases and drawing valuable lessons. Once I discover a major hidden risk in a project's fundamentals, regardless of its current price or trend, or how impressive its other factors may appear, I will decisively sell its tokens or stocks.
In the past two weeks, a member of an investment group strongly recommended a book titled 'Classic Value Investment Cases: China Evergrande' to everyone. The author is Zheng Heqi Sheng, published by Tsinghua University Press in 2019 - three years before Evergrande's official collapse (2022).
This group member recommended the book at this time hoping everyone would review Evergrande's growth process as a negative example and learn investment lessons.
Regarding Evergrande, I mentioned it in a previous article and wrote about a short report published by Citron. This event is detailed in the book, which lists several key points from Citron's report and Evergrande's rebuttal.
At that time, after Citron published its famous report, multiple investment banks closely related to Evergrande (including JPMorgan Chase, Deutsche Bank, UBS) strongly supported Evergrande.
Only CLSA published a view that now seems quite insightful, believing that the market should not focus on "what aspects of Evergrande are being questioned" but "why Evergrande is being questioned". CLSA believed that Evergrande's business strategy was overly aggressive, pushing operational and financial limits, making it an easy target for short sellers.
At that time, Evergrande was at its peak, but CLSA was not blinded by its superficial brilliance and directly pointed out Evergrande's key problem: being overly aggressive, pushing to the limits. In simple terms, Evergrande had very obvious debt issues.
When I saw this paragraph, I recalled the "common sense" that Duan Yongping mentioned in his investment Q&A book, about enterprises doing things and operating within their "proper boundaries", and his practice of excluding companies that do not conform to common sense or stay within proper boundaries.
He particularly emphasized enterprise debt risks, even using a more cautious method than general investors when estimating an enterprise's "purchase" price, calculating all of the enterprise's debts into the cost.
Among all domestic and international listed real estate companies, to my impression, apart from investing in Vanke early on, he seemingly did not touch other real estate companies. And even with Vanke, he only held it briefly before selling. He believed he could only see the value at the time he sold Vanke.
Looking at the Evergrande case through this method makes everything crystal clear.
Objectively speaking, Evergrande was excellent in many aspects, but its fundamental problem was pursuing rapid expansion, recklessly leveraging and falling into a debt trap.
This is an improper approach.
Actually, everyone could see this problem. But the key is, when everyone can see a company has fallen into a deep pit, how many would still pierce through its glossy exterior and steadfastly believe in common sense and proper boundaries?
In this book, the author's view is that for real estate enterprises, Evergrande's debt ratio is normal, which does not affect the investment value of real estate companies, even giving examples that the best XX company also has XX debt.
In other words, in the author's view, the entire industry is like this, so this is not a problem. The entire industry is not proper, does not respect common sense, so it's not an industry problem, but that common sense is outdated, and proper boundaries are obsolete.
(The real estate industry discussed here does not include state-owned real estate enterprises with special status)
The debt issue is one aspect of common sense and proper boundaries. Actually, there are many other factors that enterprises must respect as common sense and proper boundaries - such as treating consumers honestly and down-to-earth.
Among new energy vehicle startups, there was an enterprise I once greatly admired. That enterprise created miracles in many fields, but recently when I saw more and more expressions from its founder in promotional aspects, I saw not an honest and sincere attitude towards consumers, but opportunism.
I was wondering why he would become like this?
If comparing with Evergrande's journey in this book, the possible reason I can think of is:
Could it be for pursuing rapid expansion, seizing so-called opportunities, betting on the second half of his life, and thus heading towards an improper path that does not respect common sense?
If an enterprise continues to develop in this state, its outcome is likely to be not optimistic.
If an industry continues to develop in this state, its outcome is also likely to be not optimistic.
Not respecting common sense, not staying within proper boundaries, no matter how brilliant and dazzling it may look now, is only temporary. The ultimate outcome cannot escape the laws of common sense development.
