Stock selection is like hiring - Cryptocurrency Exchange

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Stock selection in investing,

Choosing companies,

And recruiting people or enrolling students,

Are all a form of thinking—probabilistic thinking.

What does that mean? If a company hires someone or a school admits a good student,

Generally, it looks at the student’s transcript.

This transcript is a summary of their past achievements,

As well as their current academic performance.

Companies or schools decide whether to recruit or admit based on this transcript.

Because everyone hopes to recruit good students,

Future good students.

The future hasn’t happened yet,

So they can only look at the transcript from the past to the present.

This doesn’t necessarily mean they will continue to be good students,

Maybe this good student, after going to college, is unwilling to study hard anymore,

Becomes addicted to alcohol,

And turns into a bad student.

So college entrance exams actually test this,

Or look at transcripts, etc.

In the United States,

At least when selecting students,

Transcripts are a very important basis.

They are based on your history to decide what your future will be.

But this is also an unavoidable method,

It’s a crutch.

If your history isn’t good,

The probability that you will suddenly become a good student after being a bad student in the future is quite small.

Probabilistic thinking is about this,

If you were a good student before,

Then the probability that you will become a good student in the future is higher.

People have inertia,

People’s change isn’t particularly large,

So their habits,

Diligence,

Love of thinking,

Strong learning ability,

Sense of competition,

These things may continue indefinitely.

So if someone was a good student before,

They are likely to remain a good student in the future.

The same applies when companies hire.

The same applies when companies invest,

The reports we look at are like student transcripts,

They are actually based on past events.

What happened in the past doesn’t represent the future,

But besides these past things,

What else can you find? You can’t always be full of fantasies about the future,

Or listen to management say, “Although we are not doing well now,

We will do this,

And that,

And our future will be bright.”

This is a low-probability event,

Like a student with poor grades,

But they swear before you that they will work hard,

And become a good student.

Maybe they really work hard,

But after all, it’s a low-probability event.

Whether it’s admissions or hiring,

You can’t just listen to what they say,

Because the cost of talking is very low,

Mainly look at what they do,

How they have performed historically.

The same applies to companies,

If a company has been poorly managed,

But suddenly, next year, there’s a big turnaround,

Operations might really improve,

Turning losses into profits,

It has happened before,

But very, very rarely.

So stock selection is often just common sense,

Just like admissions,

Hiring is the same.

Looking at history is very important,

History doesn’t represent everything,

But without history,

You really lack a very broad perspective for choices,

This perspective is still a very important crutch and viewpoint.

So I want to highlight it here,

I may have mentioned this in other programs as well.

History cannot represent everything,

But without history, it’s absolutely impossible.

Although we value future cash flows,

The future cash flows are also closely related to changes in current cash flows.

If you don’t even have this foundation,

Guessing the future situation,

Will bring great uncertainty,

And a lot of uncertainty is risk.

In investing, risk is the first priority,

We need to control this risk as much as possible.

Risk first,

It’s about increasing certainty,

Some of its past history gives you a certain degree of certainty,

Although imperfect,

It’s probably the best choice,

Based on this, you then look at how the industry will develop in the future.

If a company has been poorly managed,

Maybe it’s a good industry,

But if the management has been consistently poor,

It indicates poor management,

You shouldn’t buy such a company.

So if many financial indicators of a company are terrible (unless it’s fraudulent),

Then basically, this company can be excluded,

You can’t hope it will change in the future,

Just like you can’t hope a bad student will suddenly become a good student overnight.