投资的信仰

The faith of investing

> By Duan Yongping · his NetEase blog (nteswjq.blog.163.com, now closed; read from web archives) · 2012-06-24 · [Original link](http://nteswjq.blog.163.com/blog/static/126998120125242853184/) ([archived](https://web.archive.org/web/20120628171804/http://nteswjq.blog.163.com:80/blog/static/126998120125242853184/))

The faith of investing

The faith I'm talking about here isn't something metaphysical.

Investing as I understand it comes down to this: buying a stock is buying a company, and buying a company is buying the discounted future cash flows of the company. Full stop!

That's what I mean by so-called faith; or you could say I believe it in my bones, and it won't be shaken by any influence.

As soon as many people talk about investing, they immediately come out with lots of terms that everyone half understands; probably the reason is that they don't have this faith.

Actually investing means value investing; otherwise what would investing be investing in?

What is a company's value? It's the discounted value of the company's future cash flows.

How long is the future? It means forever.

How long is forever? Until the company ends.

What does the company ending mean? Every possibility, including being sold.

I remember Marx said: price fluctuates up and down around value. When you buy a stock, what you spend is the price, and what you buy is the value.

Actually that's all there is to my understanding of investing; everything else is derived from these few sentences.

Simple? Yes, simple but definitely not easy! People who don't understand business definitely can't understand future cash flows. Even those who supposedly understand can often only understand the discounted future cash flows of very, very few companies within their own circle of competence, and even then it's surely only a rough estimate.

"Learning to be simple is not simple": a line I saw on Weibo, which means much the same as my "simple but definitely not easy."

A formula for discounted future cash flows?

Discounted future cash flow is only a way of thinking. Only for companies within his own circle of competence can an investor roughly figure it out. No one really uses a formula; at least, none of those who survive use formulas. (Those who say they have a formula with parameters don't understand, or may even be cheating people; ignore them.)

Is it very hard? Not too bad. I ran businesses for only a bit over ten years, and since then I've been investing for about ten years up to now. In these ten years, among the companies I was interested in, I roughly understood fewer than ten (not counting those I ruled out, not counting wrong investments), and I invested heavily in five, about one every two years. Not as hard as you imagined, right?

What, you've invested in many more companies than me? Then be careful: generally speaking, beyond a certain number, the more companies you invest in, the less you make.

How can you understand a company, or understand a company's future cash flows?

There's a saying: the Eight Immortals cross the sea, each showing his own powers. But I like the approach Buffett describes. I've never looked at anyone else's, and I'm not interested in looking. I think people who have truly understood Old Buffett's stuff probably won't be interested in other people's ways of investing. Those who think I'm being arbitrary, please first understand Buffett's stuff, ha.

Saying you're half Buffett and half Soros actually means you understand neither Buffett nor Soros. (This isn't the same as Old Buffett saying he is so much Fisher and so much Graham.)

There are many ways of putting money in (I think it's better not to call it investing here). Generally speaking, the more you know, the less you make. Otherwise those who teach this at universities should make the most.

Schoolmate Old Buffett says the business model is the most important thing. I've probably been thinking about this sentence for several years and am still thinking about it, but I really do feel more and more that Old Buffett is right. That meal with Old Buffett wasn't wasted; this sentence alone is worth 100 meals, isn't it (actually far more than that, ha)?

What is a business model? I can't explain it clearly either; maybe professors at universities can give a more literary definition. But I think I roughly know what it really means.

If you still don't understand what a business model is, then look at Old Buffett's several talks at universities.

Still don't get it? Then look at See's Candies, look at Coca-Cola, look at BYD, look at Apple, look at the airlines, look at those "photovoltaic companies" making solar wafers......

Still don't get it? Then start over and keep looking. For 10–20 years, if you can't understand, you can use this method: "start over and keep looking."

What if you still can't understand after 20 years? Then we'll talk about it in 20 years.

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