Stock Classification Criteria

Slow Growth Type: Primarily focused on enjoying dividends, usually with low P/E and low P/B ratios, mainly for defensive investors; such as banking/real estate industries.

Stable Growth Type: Maintains an annual growth rate of 10-12%, with profitability depending on whether the timing and price at which you buy are correct; such as the consumer industry.

Fast Growth Type: The industry is in a period of rapid growth/ the company is in the growth stage; such as technology, pharmaceutical sectors.

Cyclical Type: Coal/steel/non-ferrous metals/automotive industries.

Principles for Buying Stocks

Stock Price = P/E (Market Valuation) * EPS (Corporate Earnings Level)

Margin of Safety: Low P/E, Low P/B!Never pay too high a premium for your stocks, ensuring there is a sufficiently high margin of safety.

The PE ratio should ideally be below 15, and the PB ratio should not exceed 5, unless the company's profitability is exceptionally strong;

Buy in strong cyclical industries when the PE is high and the PB is low, and sell when the PE is low and the PB is high;

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Quick ways to judge if a stock price is overvalued:

① Compare whether the stock price trend line matches the earnings line.

② Is the industry average PE ratio higher or lower than the company's PE ratio?

③ Look at the historical record of the company's stock PE ratio.

Select stocks within your circle of competence: do not invest in what you are not familiar with.

Moat: good companies, good products, good services, good prices; Three highs and five lows:

1. High gross margin, over 30%, indicates a good business;2. High ROE, over 20%, indicates good management;

3. High growth rate, over 15%, suggests a promising future;

4. Low inventory;

5. Low expenses;

6. Low capital expenditures;

7. Low interest-bearing debt; 8. Low equity financing;

Portfolio diversification is key, ideally investing in 2-8 stocks to avoid black swan events;

The essence of investing is not about determining the optimal number of holdings, but rather conducting thorough research on each stock to ascertain its quality. The quantity of stocks is not as important as their quality.

Avoid using leverage/debt with excessively high interest rates.

Position control? I would only switch one stock for another.Selling stocks for cash means that this portion of funds is completely withdrawn from the stock market. My perspective is to keep the funds perpetually within the stock market, shifting them between different stocks based on changes in fundamentals.

Fundamental Analysis Before Buying Stocks

Conduct thorough fundamental research

- Industry position

- Main products

- Market share

- Profitability

- Contribution of core products to turnover

- Review the revenue and net profit situation over the past 3-5 years, paying attention to growth rates;

- Pay attention to the ROE (Return on Equity) in recent years; a good business has a high ROE, exceeding 20%;

- Pay attention to the relationship between profit and net cash flow from operating activities; core profit multiplied by (1.2-1.5) corresponds to net cash flow from operating activities: provided that the inventory turnover is more than twice;

- Look for 2-3 analyses of the company by well-known influencers on Xueqiu (a Chinese social media platform for investors).Some important financial indicators:

1. The proportion of a certain product in total sales;

How important is this product to the company? What percentage of the company's total sales does it account for?

2. Price-to-Earnings Ratio (P/E Ratio)

Price-to-Earnings Ratio = Earnings Growth Rate / Industry Average P/E Ratio;

Generally speaking, if a company's stock P/E ratio is only half of the earnings growth rate, then the likelihood of this stock being profitable is quite significant.

3. Cash Position

4. Debt Factors

For companies in turnaround situations or those in distress, I place great emphasis on analyzing the company's debt situation. The debt burden determines whether the business can survive the difficulties.Principles for Selling Stocks

1. Stocks of Slow-Growth Companies

Regularly pay generous dividends, aiming for dividends.

When the increase is 30%-50% or when the fundamentals deteriorate;

The company has been losing market share for two consecutive years;

The company has no new products under development, and R&D funding begins to decrease; insufficient R&D investment.

2. Stocks of Stable-Growth Companies

If the price line of a stable growth stock exceeds the earnings line, or the price-to-earnings ratio is far above the normal level; you should consider selling the stock and buy it back when the price falls.

3. Stocks of Fast-Growth Companies

In recent years, the company's earnings growth rate (I prefer stocks of companies with a growth rate between 20%-25%, and be cautious about the sustainability of the business if it exceeds 25%).When the growth rate slows down;

Or when the valuation is clearly too high, with the PE ratio far exceeding the growth rate of performance;

The company's stock price-to-earnings (P/E) ratio is as high as 30 times, while the most optimistic expected profit growth rate for the next two years is only 15%-20%;

4. Cyclical company stocks

In cyclical industries, the company's development process is characterized by expansion, contraction, re-expansion, and re-contraction, in a continuous cycle. You should focus on the company's business conditions, changes in inventory, and sales prices as the center of your thinking;

Clear sell signals:

The company's inventory keeps increasing, and the company is unable to dispose of the newly added inventory;

Commodity prices are falling Prices of commodities such as gasoline and steel have already started to fall;

Futures prices for commodities are lower than spot prices;

Timing is the most important when investing in cyclical company stocks! A PB ratio of 0.5-1 times is a good time to buy.The key to investing in cyclical company stocks is timing; you must be able to detect the early signs of a company's business decline or prosperity.

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