- The "Competitive Advantage Portfolio" utilizes a competitive barrier analysis framework to categorize industries into four types: "Barrier Shield," "Highly Competitive," "Steady Progress," and "Seeking Breakthrough." The strategy focuses on identifying "sole leading" companies in "Barrier Shield" industries and "cooperative win-win" companies in industries without clear leaders. For non-"Barrier Shield" industries, it targets "efficient operation" companies that perform well even in competitive environments[11][12] - The "Margin of Safety Portfolio" emphasizes the internal factors of a company, focusing on creating entry barriers to ensure unique market positions and sustainable profitability. It calculates the intrinsic value of a company based on its profitability, selecting the top 50 stocks with the highest margin of safety from a pool of stocks with comprehensive competitive advantages. The portfolio is adjusted on May 1, September 1, and November 1 each year[17][19] - The "Dividend Low Volatility Adjusted Portfolio" aims to avoid the "high dividend trap" by considering the sustainability of company earnings and long-term value. It uses dividend yield predictions and negative screening to exclude stocks with extreme price performance or abnormal debt ratios[23] - The "AEG Valuation Potential Portfolio" uses the AEG_EP factor to select the top 100 stocks, then narrows it down to the top 50 stocks with high dividend reinvestment ratios. This strategy invests in companies whose growth potential is not yet fully recognized by the market. The AEG model calculates abnormal earnings growth as follows: $$ \begin{array}{c} A E G=Y_{t}-N_{t}=(E_{t}+r*D P S_{t-1})-(1+r)*E_{t-1} \\ \frac{V_{0}}{E_{1}}=\frac{1}{r}+\frac{1}{r}*\frac{\left(\frac{A E G_{2}}{1+r}+\frac{A E G_{3}}{(1+r)^{2}}+\frac{A E G_{4}}{(1+r)^{3}}+\cdots\right)}{E_{1}} \end{array} $$ where \(E_1\) is the first period's earnings and \(V_0\) is the current market value[28][29][31] - The "Cash Cow Portfolio" uses the CFOR analysis system to evaluate a company's profitability and cash generation efficiency. It focuses on the stability of free cash profit ratio, operating asset return rate, net profit margin, and total asset turnover rate, selecting high-quality stocks from the CSI 800 index[34][35][36] - The "Distressed Reversal Portfolio" captures short-term valuation fluctuations by utilizing inventory cycles to depict company reversals, considering accelerated recovery and undervaluation. It constructs a top 50 portfolio based on valuation improvement[41][43] Model Backtest Results - Competitive Advantage Portfolio: Annualized return since 2019 is 19.84%, Sharpe ratio 0.93, IR 0.09, maximum drawdown -19.32%, Calmar ratio 1.03[16] - Margin of Safety Portfolio: Annualized return since 2019 is 23.16%, Sharpe ratio 1.15, IR 0.16, maximum drawdown -16.89%, Calmar ratio 1.37[21] - Dividend Low Volatility Adjusted Portfolio: Annualized return since 2019 is 16.87%, Sharpe ratio 1.00, IR 0.17, maximum drawdown -21.61%, Calmar ratio 0.78[24] - AEG Valuation Potential Portfolio: Annualized return since 2019 is 25.36%, Sharpe ratio 1.16, IR 0.15, maximum drawdown -24.02%, Calmar ratio 1.06[33] - CSI 800 Cash Cow Portfolio: Annualized return since 2019 is 13.42%, Sharpe ratio 0.67, IR 0.09, maximum drawdown -19.80%, Calmar ratio 0.68[39] - Distressed Reversal Portfolio: Annualized return since 2019 is 24.53%, Sharpe ratio 0.99, IR 0.15, maximum drawdown -33.73%, Calmar ratio 0.73[43]

Core Viewpoint - The article discusses the concept of investment style drift among fund managers, highlighting its negative implications for long-term performance and competitive advantage [2][4]. Group 1: Investment Style Drift - Investment style is a reflection of a fund manager's long-term investment philosophy, strategy preferences, and stock selection logic [2][4]. - Many fund managers exhibit mediocre performance due to a lack of a stable investment style, leading to frequent shifts in their investment strategies, known as style drift [4]. - Style drift is detrimental to fund operations for two main reasons: it hinders the ability to achieve long-term returns and makes it difficult to establish a competitive advantage [4][6]. Group 2: Long-term Performance - The A-share market demonstrates characteristics of style rotation, with different styles performing strongly in different years, such as growth style in 2015 and value style from 2016 to 2018 [5][6]. - Predicting which investment style will perform well in the next phase is challenging, and chasing market trends can lead to inconsistent results, negatively impacting long-term returns [6]. Group 3: Competitive Advantage - Fund managers have limited time and energy to analyze numerous reports and conduct field research, which restricts their ability to focus on a select number of stocks [7]. - A fund manager typically can only deeply understand a few stocks within specific styles or industries, and spreading efforts too thin can lead to superficial knowledge [8]. - Maintaining a stable investment style allows fund managers to deepen their expertise in their favored areas, thereby building a competitive advantage [8].

Core Viewpoint - The company emphasizes that sustainable and stable shareholder returns are built on high-quality and sustainable development, focusing on core business, optimizing management, and enhancing profitability [1] Group 1: Company Overview - Dalian Bai'ao Chemical Co., Ltd. specializes in the research, production, and sales of isothiazolinone industrial biocide raw materials and has been in the industry for over 20 years, becoming the largest producer of such biocides in Asia [1] - In 2024, the company transitioned into the semiconductor equipment sector through its controlling stake in Suzhou Xinhuilian Semiconductor Technology Co., Ltd. and a stake in Xinhuilian New (Suzhou) Technology Co., Ltd., establishing a dual business model of industrial biocides and semiconductor equipment [1] Group 2: Financial Performance - In the first half of the year, the company reported revenue of 749 million yuan, a year-on-year increase of 28.42%, while net profit attributable to shareholders decreased by 44.22% to 91.79 million yuan [2] - The chemical business faced challenges due to external environmental factors, weak market demand, and continuously low prices, leading to sustained pressure on profitability [2] Group 3: Business Segments - The company’s industrial biocide products are primarily exported to Asia, Europe, the United States, and South America, with overall changes remaining stable [2] - Despite the pressure on profitability in the biocide segment, there are positive signs, such as a 7.69% increase in average sales prices of biocide products in the second quarter and a 21.37% decrease in the comprehensive procurement costs of key raw materials [2] - The semiconductor equipment business, led by the subsidiary Xinhuilian, remains a core strategic direction, focusing on technology development, market expansion, and operational stability [3]

Group 1 - The core investment principle is to focus on risk rather than potential returns, emphasizing the importance of understanding one's own investment capabilities [1] - Successful investors, like Warren Buffett, have historically avoided the temptation of emerging trends while still achieving significant long-term returns [1] - The market teaches humility, as even aggressive investors can learn the value of long-term deep value investing [2][3] Group 2 - Chris Horn, the head of TCI, emphasizes the importance of assessing whether a company will exist in 30 years before investing, highlighting the rarity of companies with long-term compounding capabilities [3] - Only about 5% of companies possess strong pricing power, high barriers to entry, and stable governance, making them suitable for long-term investment [3][4] - Many investors underestimate the impact of competition and disruption, often focusing on short-term gains rather than long-term profitability [3][5] Group 3 - Emerging industries face significant challenges, including the difficulty of identifying future winners among many competitors [5][6] - Buffett's investment strategy has focused on traditional industries, achieving a success-to-failure ratio close to 100:1, despite occasional setbacks [6] - New industries often rely on technological advantages that can be quickly replicated by competitors, leading to diminished returns over time [6][7] Group 4 - The strength of a company's competitive moat is difficult to ascertain without the test of time, as many perceived advantages can erode [7] - Value investors seek companies with monopolistic characteristics, wide moats, and strong pricing power, but most moats are not as robust as believed [7]

Group 1 - The core principle of investment is "do not invest if you do not understand," which emphasizes the importance of understanding future cash flows and probabilities before making investment decisions [2][3] - The investment process involves evaluating a company's business model, corporate culture, and valuation, where the business model and culture enhance the probability of success, while valuation relates to the potential returns [4][5] Group 2 - A strong business model is characterized by high revenue and profit potential, sustainability of competitive advantages, and ease of earning, with specific metrics such as a revenue scale of at least 100 billion RMB and a return on equity (ROE) of over 20% [7][8] - Corporate culture is assessed based on the reliability of management, their prudent use of resources, and their ability to enhance competitive advantages, with specific criteria for evaluation [12][13] Group 3 - Valuation should ensure a minimum annual return of 10%, with a focus on conservative growth rates for lower bounds and meaningful upper bounds based on historical data [15][24] - Additional considerations include avoiding leverage, ensuring stable cash flow for personal expenses, and being aware of external factors such as government regulations and geopolitical risks [16][25][26]