To The Moon

http://valuecreatingbusinesses.blogspot.com/2021/03/good-read-translated-330-billions.html 

Prelude:

Main Analysis Framework

Personally, I prefer a top-down approach when analyzing an investment. I always start from industry and narrow down to specific companies. Occasionally, I do start with the company then backward to its industry. 

Firstly, analyses of an industry.

Second, analyses of the economics moats of a company.

Third, analyses of the potential growth of a company.

Fourth, analyses of potential risks.

Fifth, analyses of the valuation.

Sixth, analyses of the potential range of the total return.

My main standard of picking a stock

Firstly, it must have a sufficiently wide economics moat.

Economics moat determines the certainty of profits.

Secondly, it must have sufficient potential for growth.

It should at least have 4-5 times potential growth in net income.

Thirdly, it must have a low enough valuation.

To ensure high enough return even if the company suffers a decline in valuation (e.g. Amazon's 120 times PE drops to 75 times PE).

Fourth, the expected total return should not less than 5 to 10 times.

The expected return is not exactly the real return. In reality, there will always be countless surprises. A stock with 10-times expected return could die in some accident or does not grow due to poorer than expected in operation. Diversifying into 3 to 5 stocks, even if one stock achieves 10 times return, the entire portfolio would be much better off compared to the benchmark.

Many asked why do I always talk about 10-times return. 

If you can't even see a potential of 10-times return, I honestly think you should just buy ETF's. ETF's (in China) in general gives an annualized return of 9%, which equivalent to 2.5 times return over 10 years.