What is the next step for Buffett in China
What is the next step for Buffett in China? It's a joke if he will invest a company like gmtlight, at moment, we have No innovation, no growth, we are so small, we are not able to get enough profit for our selling prices always so lower! We are still working on and discussing how to survive. I will tell you the truth below:
1. Among the well-known Internet companies, Tencent is the only one with a long-term return on net assets of more than 20%. Perfect World, Gibbet and other game companies have reached the standard, but their market position is relatively low and their reputation is relatively quiet.
2. BYD's return on net assets has not been up to the standard all the year round. The latest data is about 4.95%. It can be said that it is tragic, but Buffett shares have not been sold.
Every year on the first Saturday of May, global investors gather in Omaha, a small American city, to listen to Buffett's motto.
At the Berkshire Hathaway Shareholders'Meeting on the evening of May 4, Beijing Time, Buffett disclosed that he would increase his investment in Chinese companies in the future. There are two criteria for his choice: one is a company with a return on net assets of no less than 20%, the other is a company with stable growth.
There are many qualified Chinese companies, most easily associated with Buffett's favorite consumer companies, such as Maotai, Gree Electric Appliances in Guizhou. In fact, technology companies can also meet the above standards, such as Tencent, Perfect World, Haikangwei, Industrial Foxconn (Foxconn), Dazu Laser...
Will Buffett, who missed the American revolution in science and technology, miss the tide of science and technology in China today? Which third Chinese company will it invest in in the future?
1% and 20% are watershed
In his letter to shareholders, Buffett said: "The main basis for judging a company's performance depends on the return on net assets (excluding improper financial leverage or accounting) rather than the growth of earnings per share."
The return on net assets is the percentage of the company's after-tax profits divided by net assets, and its formula is "net profit/net assets x 100%". This index reflects the level of investment income. The higher the index, the higher the return on investment of the company to shareholders.
Why is the criterion of return on net assets 20%?
This is Buffett's specific, which openly says, "All the companies I choose are good ones with a return on net assets of more than 20%.
The fact is that it's really hard for a company to reach this target, and even harder for a company to reach it in the long run.
According to the zinc scale reporter, there are more than 3000 stocks in A shares, and only more than ten companies with a long-term stable return on net assets of more than 20%, which is rare. So are American stocks and Hong Kong stocks.
If a company meets the long-term target, it shows that the company has a moat, a high market positioning, fewer competitors, and a strong profitability of the business model - from these perspectives, this is an important reason for Buffett to choose investment criteria, because it can make a steady profit.
From Buffett's past investment experience, the same is true - Buffett's Berkshire Hathaway, also bought after Apple (the first quarter of 2019) and Amazon (the second quarter of 2019) entered maturity.
2. Selling PetroChina and sticking to BYD
Buffett's investment in PetroChina has made a lot of money. Buffett's investment in PetroChina has made a lot of money.
Over the past 20 years, Buffett has invested in two Chinese companies, PetroChina and BYD.
In 2003, Buffett gradually bought PetroChina (Hong Kong) shares that met the investment criteria on the grounds that: "This is the first time I bought Chinese shares. The price I bought is very low, only three times its profit last year."
At that time, Buffett invested $488 million and bought 2.34 billion shares, accounting for 1.3% of the company's total shares.
Buffett's cost does not exceed HK$1.7 per share. Five years later, from July to October 2007, Buffett sold all of PetroChina's shares at a selling price of about HK$13.5 per share, with a total market value of about US$4 billion, making a big profit.
Investors who bought PetroChina at the opening price of 48 yuan have so far had a long way to go.
Buffett's reason for selling PetroChina is also simple. At the low price of oil ($30 per barrel), PetroChina, which has been seriously underestimated, cleared its positions at the price of more than $100, deduced a classic value investment.
In 2008, the sweet-tasting Buffett invested in China for the second time and subscribed for 225 million BYD shares at HK$8 per share.
Wang Chuanfu and Buffett Pictures Wang Chuanfu and Buffett Pictures
Before 2008, BYD presented a prosperous situation. Lithium iron phosphate batteries have become the industry's "elder brother". In the automotive industry, BYD F series and other explosive models have emerged. At one time, with F3, BYD became the champion of annual sales growth rate in China's automotive market.
After that, BYD transformed into a new energy vehicle, which was also brilliant. It was not until it was overtaken by Ningde-era bend in the battery field that a series of problems occurred and a lot of valuable funds were consumed, which led to the deterioration of its performance.
But from the point of view of the return on net assets, BYD does not meet Buffett's standard. The latest data is about 4.95%. As for gross interest rate and net interest rate, they have both declined. In the past five years, BYD's gross interest rate has declined from 20.32% to 16.40%. The decline is not significant, but the net interest rate has dropped from 5.30% to 2.73%, almost to the waist, which is much lower than that of Buffett's standard. Average net interest rate of automobile industry.
Buffett, however, has not sold a share, in contrast to many wavering market investors.
One reason is that Buffett is very interested in the business management strength of the founder of BYD. In an interview, Buffett talked about four CEOs he most appreciated, including Wang Chuanfu: "There are many great ideas, and he is also very good at it."
What is the next step for Buffett in China? It's a joke if he will invest a company like us, at moment, we dont have new creation, we are not able to get enough profit for our selling prices always so lower! No any reasons, the only way is going on working hard.