Reflections on China's collapse: How to escape before the collapse?

This week's China Securities Market was still in ICU two days ago, and it started bungeing in the past two days.

The friends who made it to the end may double in two days, and even the deep-seated shareholders have taken back their old blood.

As a bystander, I was shocked. From entering Hong Kong and US stock investments in 2019, in just three years, I have witnessed the whole process of China Securities from mediocrity to insanity to collapse.

With this ultimate bull and bear transformation, it's time for some reflection.

The first point to reflect on is how to escape before the crash?

Once it falls, there is often a ** rise to pave the way. Without mountains, where can there be a cliff?

The sharp rise in China Securities began with the outbreak of the epidemic in 2020. Since most China Securities are in the Internet industry, they have not been greatly affected by the epidemic, and their performance has maintained rapid growth, making them a rare safe-haven asset.

At the same time, due to the pandemic, global currencies have been released, and hard-core assets have been snapped up. I am very honored. China Securities is one of them.

Take NIO, the leading NEV stock company, as an example. At the beginning of 2020, NIO's stock price was still 3 US dollars, and the market-sales ratio was 2.5 times. When did the market's impression of NIO go bankrupt at the time?

As NIO takes sides with the local government in Anhui, the cash flow problem has been solved, and sales are increasing.



Naturally, this contributed to NIO's revenue explosion and became the engine for the sharp rise in stock prices.

In December 2020, NIO's market-sales ratio was as high as 35 times, corresponding to the high price of 67 US dollars.



According to NIO's monthly delivery data, car sales were 152% year-on-year from January to September 2021. However, monthly deliveries rose 28% year over year in October due to chip shortages.

Entering 2022, NIO's January-February sales grew 23% year on year, a sharp drop from the previous 100% growth rate.

As a result, NIO's collapse this time cannot be discussed as a victim of the Sino-US financial war; it simply kills valuation.

Let's take another look at the worst Alibaba, the stock that locked down Munger.

When the US stock was listed in 2014, Ali's initial market sales rate was as high as 20 times. After listing, it almost fell short.

Judging from the market sales rate over the years, Ali has been killing the valuation since it went public:



However, due to the rapid growth rate of performance, the evaluation did not affect the rise in Ali's stock price:



At its peak, Ali's market-sales ratio was about 9.5 times, and Amazon was 4 times higher at the same time.

Although Ali's growth rate is faster, it is twice as high as Amazon, and it's not cheap.

Judging from the quarterly revenue growth rate, Alibaba's performance growth slowed in the fourth quarter of last year. The year-on-year revenue growth for that quarter was only 9.7%, which is considered a thunderstorm.

However, the sharp decline in Ali's stock price began in the first quarter of last year. Maybe institutional capital knew in advance that Ali's growth rate would slow down?

Obviously, there should not have been such smart capital; rather, the decline at the beginning of the period was due to Ma's dad's statement when Ant went public, keeping the capital away from policy risks.

As it fell and fell, Ali's performance soared, and he had no choice but to keep on killing.

Therefore, Alibaba's decline had little to do with the Russia-Ukraine situation, the Federal Reserve's interest rate hike, and the distance of foreign capital from Chinese assets.

Whether Mr. Munger can break the deal depends on whether Ali can resume high growth. The current valuation is already very low; it is only a matter of waiting for performance to take off.

NIO and Alibaba are very representative in China's securities market. The former is representative of securities in rapid growth. Similar to them are Bilibili and Pinduoduo, while the one similar to Ali is Tencent.

The market sales rate of high-growth securities was generally 20 times higher than that before this** fell, such as Bilibili:



However, according to historical experience, once the market sales ratio is estimated to be 20 times higher, it is often a bubble area.

This experience is not limited to Chinese securities; leading US stocks, such as Tesla, also began to decline after exceeding 20 times the market sales ratio:



Intuitive Surgery, the leading medical device company, peaks every time the market sales rate exceeds 20 times the valuation:



For most individual stocks that exceed a market sales ratio of 20 times, if revenue cannot continue to grow at a high rate, simply killing the valuation is enough for investors to accept.

As a result, securities have plummeted in this round, and the biggest reflection I received was if I didn't have a deep understanding, be wary, and stay away from individual stocks with a market sales ratio of 20 times or more!