Stock investment, to avoid the hot industry companies! Not only should we avoid "hot investment (high valuation)", but also "hot business (fierce competition)".
The first point is easy to understand. Hot stocks are often accompanied by high valuations. Even good companies, if the purchase price is too high, will become a mediocre investment, or even lose money.
The second point is "hot business"?
Fu Yu's interview with Buffett is a good answer!
Fu Yu: "Now investors always say that the most promising areas for investment are artificial intelligence, big data and biotechnology. Are these views justified?"
Buffett: "These industries will be very important in the future. But if you look back, in 1903, Henry Ford was probably the most famous businessman in the United States - in the car business. If you go to another search engine, you can see more than 1,000 companies entering the car business. In 2009, only three or so remained, two of them still bankrupt. So, you can be in a very big and very important industry, automobiles are very important to the U. S. economy, which makes a huge change in the U. S. economy, but this does not make everyone rich. In fact, almost all of the automobile companies have stopped production. So don't mix an important industry with an industry that is profitable for investors. There is no doubt that AI is very important, and you will see various developments in this field. The same is true of biotechnology. But that doesn't mean you can make money by buying shares in an AI company or a biotechnology company.
Many people are chasing hot industries, high-tech industries, industries supported by the state, etc. When automobiles and televisions came out, they were absolutely high-tech industries at that time, even new industries which were very important for the country to the world. They had broad prospects for development. But you could not make money by buying shares of Companies in this industry. On the contrary, the probability of losing money is very high! Because of thousands of enterprises, only three or two can survive and make money, which is lower than winning the lottery. What new energy sources, solar energy, environmental protection, Internet Finance and so on have been rushing to these industries in the past few years, and what has happened? Nobody can make money!
Qiu Guolu said, "Better choose the moon than countless stars." Investment should be made in industries where the winner or loser has been divided and the pattern has been determined, to select those enterprises which are already far ahead and have obvious competitive advantages. It's not about betting your luck in a highly competitive, unbeaten industry. It's the same thing!
Buffett makes a lot of sense: "You can choose goals in a very promising and very important industry. But don't mix an important industry with an industry that is profitable for investors.
Again, the important thing: don't mix a very important industry with an industry that is profitable for investors!