"Methodology for Crisis Investment and Research in Mature Companies"

Establish a systematic cognitive framework before investment research: (Excess return = Good companies with reversible crises × Extremely low stock prices misjudged by emotions × Market space with enormous growth potential × The square of the time spent waiting patiently)

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Purpose of investment research analysis (to find a simple and easy-to-understand business and a mission-and-vision-driven company with a deep moat, operated by an honest and rational management team; cross-verify that the current stock price is below its intrinsic value—this is the buying opportunity )):

One, Target introduction (a good company can be explained in one sentence)

1. Describe the company’s strategic positioning in one sentence.

2. Use scenario-based storytelling to explain users’ pain points, needs, and the solution.

3. Verify the authenticity of the solution’s demand with data.

Two, Crisis detection (all corporate crises ultimately are financial crises)

1. Self-rescue for survival: Can a combination of moves—shrinking the business, reducing costs, cutting expenses, layoffs, salary reductions, etc.—help the company withstand the crisis?

2. Amputation for survival: Can a combination of moves—repositioning, focusing on the core business, divesting non-core businesses, etc.—help the company withstand the crisis?

3. External rescue for survival: In the current crisis environment, is it still possible to raise enough funds to deal with the crisis?

(Each question is worth 1 point; a score of 1 or more is required to pass. Even combining all three questions can also earn 1 point.)

Three, Judging opportunities (Is there sustainable profitability in the future?)

Does the enterprise have governance capabilities that enable the organization to operate efficiently (Can the people on the management team do it?)

1. Is the company driven by its mission and vision?

2. Does the corporate culture inspire people’s goodwill?

3. Is top leadership a leader with an entrepreneur’s mindset?

4. Do the organization’s production relationships help production run smoothly?

5. Have large mergers and repurchases over the past 5 years destroyed value through “high-buy low-sell,” or created value through “low-buy high-sell”?

6. Is the decision-making system made by those closest to the market users?

7. During crises, does management reduce holdings to cash out, or take advantage of the low-price period to increase holdings and repurchase?

8. Does the business model help the company maintain a leading position in market competition?

9. Are the organization’s overall goals and the sub-goals at each stage clear and coordinated?

10. Does the strategic direction maintain long-term focus and concentration on the industry?

(Each question is worth 1 point; a score of 6 or more is required to pass.)

Does the business have potential for sustainable development (Can it be done in a feasible way?)

1. Does it have monopolistic operating rights such as franchise/exclusivity, exclusive rights, and patent protection?

2. Market share far ahead of peers.

3. Absolute industry pricing power.

4. Irreplaceable control over the industry chain.

5. Extraordinary focused industry innovation capability.

6. Products with extreme cost-effectiveness.

7. A self-amplifying growth model driven by word-of-mouth communication.

8. Ability to cover all-scenario channels for the target audience.

9. Still has potential for high growth in the future.

10. In segmented scenarios, a sub-category brand equals users’ mindshare of the category.

(Each question is worth 1 point; a score of 6 or more is required to pass.)

Does the company have the ability to make shareholders profitable (Can it bear fruit?)

1. Return on invested capital has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

2. The revenue growth rate has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

3. The net cash-to-value ratio has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

4. The cost proportion has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

5. The net asset-liability ratio has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

6. Shareholder earnings have historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

7. Profit retention that creates market value has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

8. Net profit has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

9. The ratio of capital expenditure to depreciation expense has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

10. Return on net assets has historically been in the top tier of the industry for a long time, and the deterioration of the current indicators has clear cyclical or one-off characteristics.

(Each question is worth 1 point; a score of 6 or more is required to pass.)

(For the three major questions above, each is worth 1 point; a score of 2 or more is required to pass.)

Four, Entry timing (buy excellent companies with sustainable profitability at very cheap prices)

1. The stock price is completely misjudged by emotions; the stock price is at 50% of intrinsic value. (You must calculate valuation using 10 or more different valuation methods applicable to this industry, and cross-check and confirm the intrinsic value)

2. Downside risk is limited; upside returns are unlimited.

3. Effective signals from catalysts are already clearly visible.

Five, Exit timing (sell when no one pays attention; sell when no one seems to care; sell when the crowd is buzzing)

1. The stock price rises sharply in a rebound and greatly exceeds its intrinsic value, and market participants have a unified consensus of irrational optimism.

2. The certainty of sustained future profitability is lost; if your investment judgment is wrong, stop losses should be executed in time.

3. There are issues with management such as financial fraud, serious ethical flaws, or fundamental changes in corporate governance that are unfavorable to minority shareholders.

Six, How big is the risk of disruption (disruptive innovation always happens across boundaries)

1. How likely is it that the profit model will be completely disrupted within 3 years?

2. How likely is it that technological barriers will be completely overturned within 3 years?

3. How likely is it that product advantages will be completely overthrown within 3 years?

Seven, Does the build-up principle comply (peace of mind is the true destination)

1. Are you willing to become a shareholder of the company?

2. After buying, can you sleep soundly and feel at ease?

3. Holding for 3 years—does the business have room for a 5x increase?

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Post-investment research: check three principles (do great things with excellent people):

1. A leading profit-generating business with high growth potential,

2. Intrinsic value is misjudged by emotions, and the current entry price is very cheap,

3. Mission, vision, values, strategic positioning, plan cadence, target outcomes, team capability, roadmap, etc., are aligned.