How to interpret "value investment" and the relationship between "value investment" and valuation.
This view is shared by a big shot and is not original, but I personally agree with the core idea.
1. What exactly is value investing? / What is the definition of value investing in our minds?
Who do we mean in the question? CFA charterholders, professional investors, or even Wall Street, if you will.
First of all, the concept of value investing was defined and interpreted by CFA. And the person who proposed this concept was not Buffett, but Benjamin Graham, the founder of CFA and the author of "Security Analysis", who first proposed the standard of value investing.
Graham originally proposed a hypothesis that when you invest in an asset, assuming this thing is A, you must first clarify how much A is worth, or you have a clear method in your mind to calculate the value of A.
PS: I call this point self-valuation, which is what we often say. I believe that Bitcoin will reach 100,000 next year and 1 million in five years. Naturally, I have my own opinions to support this theory.
In simple terms, before you buy something, you need to have an expectation of its value in the future. Profit, I buy a Bentley, and this car can help me negotiate how much business and generate how much profit in my business in the next five years.
This involves the term I have been talking about recently, "valuation". Many stock market traders, and even crypto market traders, simply ignore valuation and buy blindly, regardless of the track or price. They buy as long as they hear someone say "value". They have no idea about the tokens they buy, and no idea about future expectations and self-valuation. This leads to waiting with unrealistic fantasies and expectations, and then after buying, if the expectations are not met, they blame everything, even the exchange. The whole world is sorry for me, and the whole world is a scam. This is the current situation of most people, and I really don't agree with this.
Big Brother:
So Graham put forward the premise of this investment, which is the definition of value investing. When you buy this thing or an investment, you must clarify your self-valuation and expectations.
Of course, Graham also proposed a method to calculate the value of this thing.
Simply understood as "discounted future cash flow"
Before we buy an asset or investment, we add up all the future earnings it can generate and discount them to today. This number is its value.
PS: For example 1, the current price of Ethereum is 3,000 USD. I think that in the next 5 years, Ethereum can reach 50,000 USD. I will multiply the amount I bought by the expected future value, and the value I get is the value of Ethereum. I will only choose to sell my Ethereum when this value is realized. Therefore, whether Ethereum falls or soars during this period, I will not choose to sell unless it reaches the 5-year time expectation or reaches my expected price of 50,000.
Example 2: When I think a person has outstanding abilities and I believe he can create 100 million value for me in the next five years, I will use 10 million or other benefits, including annual salary, to buy you out directly and let you sign a five-year contract. Then from now to the future, I only need you to help me achieve my expected value of 100 million.
Big Brother:
Ever since Graham proposed this calculation method, humans have had a relatively reliable calculation formula to set their own value expectations.
PS: Of course, this is only relatively reliable. In fact, apart from professional practitioners and financial giants, most ordinary traders are indeed unable to make effective and rational judgments on the categories of their investments rationally and reasonably, so they cannot come up with the most realistic value assessment and value expectations.
Of course, this method is currently being used in all walks of life, but it is more complicated. We often talk about a company acquiring a downstream company, or a big boss acquiring a building. Every time it acquires, a professional team conducts various industry assessments, including current value, future value, etc. These are actually algorithms for discounting future cash flows, but they are more complicated. The final result is given to the boss, who takes a piece of data to negotiate the price and complete the acquisition.
Of course, it is also useful for our investment. When I estimate that the current price of Bitcoin is 60,000 US dollars per coin, and I expect to buy 50, then when the price of Bitcoin is lower than 60,000, I will buy it. My future expectation is that the value of Bitcoin in the next 5 years will be 200,000. Then, unless Bitcoin quickly reaches 200,000 within 5 years, or the 5-year period is up, I will re-evaluate according to the market, otherwise I will not sell my Bitcoin during this period. In fact, this is what we often say, buy low and sell high, but it must be combined with the time cycle and psychological valuation expectations.
Big Brother:
In fact, buying low and selling high is roughly equivalent to value investing, but the concept of value investing emphasizes that you need to know where the scale of the low and high points are. I believe that most people may not be able to judge this well.
Of course, many people think that this theory is just repetitive when they hear it. In fact, it doesn’t matter. It doesn’t matter if you don’t believe in Graham’s method of calculating the future cash flow discount. You can set your own recognition method based on your self-cognition, and then do your own calculations, valuations, and psychological expectations.
In fact, value investing is telling investors that they need to keep calculating during the investment process, to calculate the value of your investment products in order to measure and finally make buying and selling decisions. At the same time, with your own evaluation, you will have a clear understanding of the investment products, whether the current price is higher or lower than your expectations, how much higher it is, and how much lower it is, you can make effective judgments.
As for long-term holding and unlimited cash flow, it is obviously not value investing, nor is it what retail investors think of as value investing.
Long-term holding is a concept of wealth management.
Unlimited cash flow is a state of income.
Buffett is not the originator of value investing, but he is one of the practitioners of value investing.
PS: In the final stage, in fact, combined with the words of the big guys, they actually coincide with my thoughts. This is also the valuation issue that I have been emphasizing recently. Most people do not have a clear understanding and valuation of the market for certain tokens, so this leads to blind buying. When they cannot realize their unrealistic dreams of ten times or a hundred times, they blame everything, even the exchange. Some time ago, the top female anchor of Binance also encountered such a problem. Because retail investors had unclear valuations of newly listed tokens, they bought in blindly. In the end, the tokens went online and fell due to market factors including the project’s own factors. Traders cursed and ran around to curse traders, which was indeed a bit helpless.
In fact, when you see this, whether you want to try to use Graham's method of discounting future cash flows or want to calculate by your own method, it's all good, but don't fail to "calculate". Without calculation, there is no cognition and expectation, and this kind of lack of expectation often leads to greater and more unreal expectations and future. The greater the hope, the greater the disappointment, and in the end you can only curse.
If this goes on for a long time, I will become angry and lose my mind. Under this premise, I believe that the market does not need to teach you a lesson, your own violent mentality is enough to bring you down, and you will eventually leave with the word "blockchain scam".
My last words to everyone are, whether it is life or investment, there is actually a long road to go, and what we need to do is not to find shortcuts to the end, but to keep moving forward and learning along the way. Only in this way can we ensure that our road is not so bumpy and we can eventually reach the destination we want.
Tag the big guys in the article and paraphrase their words in time. PS: These are my personal opinions. Please be careful to distinguish the roles when criticizing.
#BTC走势分析 #价值投资
