How to Measure "Value" in Value Investing (2)

In the previous article, I shared with you the judgment of value investors in the traditional investment field on value: YesValuable things must be able to generate our visible and tangible needs.

This method of judgment is applicable to mature industry fields, but I don't think it is applicable to new fields. In this regard, the history of the development of the Internet has given us a good reference.

At the end of the 1990s, when the Internet first entered the public and was rising in the industry, various companies and enterprises dressed in Internet clothes emerged like a tide, which triggered a wave of Internet boom in the world, mainly in the United States. This wave of enthusiasm has also led to a large number of Internet companies listed on the NASDAQ exchange, and Internet stocks have become a hot target in the investment world. As long as any company has a little bit of "Internet", the stock price will skyrocket.

At that time, none of these listed Internet companies (including eBay and Amazon as we know them now) had a profit model that generated positive cash flow, and all companies were losing money. So none of these companies have "value" by the standards of the traditional investment world.

Buffett said that he didn't understand Internet companies and Internet stocks, so he didn't buy any Internet company stocks.

The surge in Internet stocks finally reached its peak in 2000, and then it collapsed in a straight line.

In this wave of big bubbles, Buffett escaped perfectly, but in fact he also missed the miracle that Internet stocks produced later.

Let’s still take Amazon as an example: In this bubble, its stock price reached as high as $94.06 in 1999. After the bubble burst, its stock price fell to below $6 in September 2001, a drop of more than 90%. However, if some investors bought at the highest point of $94.06 and held it until now, Amazon's stock price has risen to $2388.85, and its increase has exceeded 20 times in 20 years.

Not only Amazon, but also a series of emerging Internet stocks such as Google and Facebook have achieved amazing returns in the past 20 years.

When we look at these companies today, their current profit model is not fundamentally different from that of the past: for example, around online advertising, such as relying on online transactions. However, 20 years ago, when people talked about these profit models, in the eyes of traditional investors such as Buffett, such profit models were difficult to make money. why? Because the ecology of the Internet was not perfect back then, and people's consumption habits had not changed. Under such an objective environment, it was impossible to make money with this kind of profit model.

Therefore, traditional investors such as Buffett would not buy Internet stocks back then, and there were only two kinds of people who bought them back then: one is people who truly believe in the Internet and can see its future; The people who made money during that wave.

Under such circumstances, people who are obsessed with traditional investment concepts like Buffett are destined to lose this emerging opportunity of the Internet; and people who follow the trend and purely hope to make a fortune will definitely think that "Internet stocks "It's just hype, where is the new technology that represents the future.

Such a scenario is happening again in the blockchain industry today: Traditional investors led by Buffett have once again denied digital currency and the future it represents, so they will not touch digital currency at all; instead they bought digital currency mainly on speculation People in the bear market will look at digital currency with a smashing attitude.

So in this case, how should we judge the "value" of the emerging things such as blockchain and digital currency?

I think the judgment of value should return to the simplest idea: that is, whether a digital currency can produce application scenarios that we do not have now, or whether it can use our current application scenarios with more efficient and lower cost. way to achieve. If so, then we should temporarily forget the limitations of technology or the limitations of people's usage habits, and analyze the possibilities of the future.

In digital currency, I always think that Ethereum has proved that it can realize our existing financial application scenarios in a more efficient and lower-cost way through the two scenarios of ICO and decentralized finance, but because Ethereum The limitations of existing technology make it impossible to really bring out the effect of this scene.

But Ethereum 2.0 shows us a bright future, and this goal is very promising. Once Ethereum achieves this goal, then blockchain technology can truly enter the lives of ordinary people, truly change our lives, and at the same time prove the subversive significance of blockchain technology, just like today’s Alibaba and Tencent can prove that the Internet same subversive meaning.

Once the blockchain and digital currency can prove their subversive significance, then Bitcoin, the ancestor of digital currency, will inevitably show its status in history. This historical value and significance will be reflected in the price like cultural relics and gold. come out.

This is my understanding and judgment of the "value" of digital currency.