Differences between investment banking thinking and investment thinking
Many people say that investment banks are imprisoned by the rules and regulations of a certain association, mainly focusing on compliance, and there is no room for them to play. I always think that this is just a phenomenon, and may not be the essence of things.
Today, I tried to record some of my experience. I know that it is not the final answer, but the thinking on the way of investment.
Investment banking thinking and investment thinking, the same is to tap the value of enterprises. If investment banks only focus on compliance, I believe it is going astray.
An excellent investment banker should certainly pay attention to compliance, but this is only the basis of investment banking business. Compliance is certainly not the essence of investment banking thinking.
The essence of investment bank thinking is seller thinking. Whether facing regulators or investors, the investment bank aims to tell you how excellent and valuable my client (issuer) is.
In other words, the investment bank is to say good things about the issuer. Small advantages are exploited into big advantages, and the advantages of the prospectus are written in a pile.
When encountering novices in investment banking, the old insurance representatives should also give a private education with great sincerity. We should first convince ourselves that this is a good enterprise, so that we can write a brilliant story and make investors believe that this is a good enterprise.
This is determined by the nature of the work. I think it's understandable. The capital markets in developed countries are the same. As for the rules and regulations of the regulatory authority, the essence is to prevent the issuer and the investment bank from boasting, and finally let the investors with asymmetric information suffer losses.
Therefore, the prospectus of the capital market in developed countries is usually written by lawyers, which is more rigorous and correct, and lawyers are not responsible for selling stocks.
When it comes to the real sale of stocks, the investment banks will come on the stage again to make you believe that the issuer of the upcoming IPO is a real star of the future. The industry space is not generally large, the industry barriers are not generally high, the national policies are not generally supportive, the enterprise management is not always experienced, the R&D technology is not generally leading, and even the geographical location is closer to the potential customers, which is also an advantage that must be advertised.
In a word, this enterprise is good and everyone should buy it quickly.
The essence of investment thinking is buyer's thinking. It is meaningless to persuade others. It is oneself who brings out the real gold and silver, and the right and wrong will eventually be tested by the market.
As a buyer, of course, we should pay more attention to the competitive advantage of the enterprise, but unlike the seller, the buyer should find out the real advantage of the enterprise.
The so-called real advantages should be beyond the reach of ordinary competitors in the industry. When our team wrote the investment analysis report, I was very strict with the content of "competitive advantage" and often found fault.
Some colleagues do not understand, saying that there are always several advantages to be written in the report, which is a typical seller's thinking. I hope to write if I really have the advantage, and not if I don't. This report is the basis for our decision making. It is unnecessary to show it to outsiders. No matter how many advantages we write, it is useless. The key is whether we have made clear our investigation, research and analysis.
How can we make this advantage clear?
First, we need to have a deep understanding of the industry, and second, we need extraordinary business insight
Third, we need some reverse thinking.
Needless to say, the profound understanding of the industry requires a long time of accumulation and reflection of business insight, which ultimately tests whether you can understand how the world works. Many plausible logics are untenable, especially the arguments of many mass economists. Bridgewater Fund has a report on its official website that is worth reading.
In fact, as an investor, many people have told you that there are several reasons to support how good this enterprise is. Investors need some reverse thinking to falsify all the advantages of the enterprise one by one, carefully examine whether the evidence behind these advantages is reliable, and whether the logic can stand scrutiny. If not, this advantage may be tenable.
In addition, investors should focus on the risk points of the project, especially where the potential risk points are. No one will tell you this very clearly, which is not necessarily a deliberate misleading, but an overly optimistic tendency.
Therefore, investors need to analyze risks in great detail and depth. The enterprise faces many pitfalls in the development process. Even the management of the enterprise may not be able to predict that. Investors should have a clear understanding of the probability of these risks occurring in the enterprise and the extent of value destruction after the occurrence.
In the final analysis, the buyer's thinking should not only explore the advantages of the enterprise, but also find fault, because the importance of risk control in investment is far higher than anything else.
If it is a secondary market, due to the high efficiency of the market, it is useless to only explore the advantages that everyone can see, and it is useless to only see the risks that everyone can see.
From this perspective, it is more difficult to invest in the secondary market, but the risk of asymmetric information in the secondary market is relatively low.
In the past year or more, we have studied more than 100 projects in depth and seen more enterprises. But almost every enterprise thinks that they can grow well. I believe they really think so. The question is, what are the final facts?
Listed companies are a relatively excellent group. Now there are about 2900 listed companies in A-share market. I asked my colleagues to make statistics some time ago. In the past five years (2011-2015), only 80 listed companies have increased their operating income and net profit after deducting non profits by no less than 10% every year.
Taking 2900 as the base number, the ratio is only 2.76%. When we invest in the primary market, if the enterprise says that it has only 10% growth every year, it is a bit embarrassed to tell investors.
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