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Interview guest: Wu Xiaobin, Founding Partner/Fund Manager of Jianfeng Fund

Q1: What do you think is the biggest gain for you from working in the securities industry over the years?

A: It should be said that securities companies are the training base for many of our peers. We often call securities companies the Huangpu Military Academy of many of our peers. In fact, I think I have gained a lot in securities companies. I think there are two main points. The first is compliance, which has guided my future career. Because our industry not only faces market risks, but also faces many market temptations. But we actually follow our original intention at the beginning and have been concentrating on our securities sunshine private equity route. In this process, we put the concept of compliance first. Another thing, I think securities companies bring me professionalism. Because in securities companies, there are indeed some professional positions in various lines, and there can be a specific division of labor. Then when we study the entire market, including macro, strategy, industry, etc., there will be corresponding professional analysis and research, allowing us to do different sorting. This actually laid a good foundation for me to sort out my own investment ideas later.

Q2: What was the reason that made you switch from securities to private equity?

A: Because I used to work in a securities firm mainly in investor education and investment consulting, dealing with high-net-worth clients, sharing some of our company's investment information with them, of course, after our own analysis and processing, and sharing some of our views on the market. When we accumulated a certain amount of professional experience, I always felt that many things were still on paper, so I always yearned for the opportunity to switch from investment consulting to asset management. We actually had such an opportunity at that time. In 2011, there was a trend in the country that securities firms wanted to reform investment consultants. So at that time, I thought that if I wanted to go in the direction of asset management and practical operations, then I might only be able to go in this direction by going out on my own and taking the private equity route. It was also a coincidence that in 2014, when I came out, the country just started to issue formal licenses for the entire sunshine private equity. That year, we also encountered such a historical opportunity, so we made up our minds to try it out. As a result, it has been 10 years since 2014.

Q3: Why is the company named "Jianfeng"?

A: The two characters of "Jian Feng" are first of all "Jian" which means "small on top and big on the bottom". My meaning at that time was: because we are starting a business from scratch, it must be a process of growing from small to large. But because we have always integrated the concepts of compliance and steady operation, we think "Jian" represents a gradual progress, slowly growing from small to large. "Feng" is three drops of water plus a "Feng" for harvest. Some people say that water is wealth, so we hope that this water will become more and more abundant and gather more wealth. At the same time, we think that this "wealth" is not only the "wealth" of wealth, but also the "talent" of talent. Because we know that there are many like-minded friends in this industry, we also hope that as the company grows from small to large and continues to grow, in addition to gathering more wealth, we can also gather more outstanding talents, gather together, and work towards a common goal to form a company with a larger pattern.

Q4: What kind of strategy are you managing now?

A: Actually, most of the time, including the beginning of my career, I mainly adopted a subjective long strategy. Of course, due to the changes in the market situation in recent years, we have also added some low-volatility hedging strategies this year. In the entire operation process, I actually think that in addition to keeping up with the times and the role of our own thinking and judgment in decision-making, we have also introduced some quantitative methods to assist our investment decisions, including improving some of our investment efficiency. So I think because our entire market is developing and our entire industry is also progressing, we will actually always learn from some good peers and are willing to get in touch with some new things to enrich our own investment strategies and help us make up for some shortcomings in investment. In this way, we can slowly purify our strategies in all aspects and improve our efficiency. In the past, we thought that quantitative is quantitative and subjective is subjective, right? But now some people are starting to combine quantitative and subjective.

Q5: How did you come up with the idea of ​​putting quantification and subjectivity together?

A: Since I first came into contact with quantitative analysis and learned about it, I have never rejected it. I have never thought that quantitative analysis will be used to replace people. I always think that quantitative analysis is a very good tool. I always think that when we invest, many investors have a common confusion, which is called the unity of knowledge and action. After all, we are human beings. Human beings are often disturbed by emotions, which leads to distortion in operation even if we know how to calculate. At this time, the natural advantage of the machine appears, that is, it is very calm. It will resolutely execute some plans that you think of when you are calm, and will not be swayed by the emotions at the time.

Another point is that I think machines can actually help people share a lot of complicated work. For example, when we first entered the industry, we might review the market for a day at a brokerage firm, and after the market closed, we might only review a few hundred stocks. Now there are more than 5,000 stocks in our market. If you want to review all 5,000 stocks, you don’t have enough time and energy. In this case, I will use some quantitative methods to help me scan the entire market. This is a necessary condition. I will let it scan the entire market first, and then I have eliminated most of the stocks when some necessary conditions are met. Then my focus of reviewing is to find some opportunities in these two or three hundred stocks.

Another point is that I actually think that humans and machines have a cooperative relationship. Although we are doing a subjective long strategy, I think my subjective long is a subjective long under the premise of respecting the market. But my idea is to use active quantitative review to first see where the market's synergy is. If many companies show a positive commonality and resonance at the same time, then I know that the market's synergy is forming at this time. At this time, my subjective observation is to observe whether it is because of the industry, the concept, or an emergency, and I think about the logic behind it. This is my subjective long idea. In my subjective long idea, I think about how to use quantification.

As for my hedging products, I have actually already thought of my long and short logic, which I decided at the beginning. In this long and short logic, we actually found that there are many full-time quantitative tools, such as some T0 quantitative tools. Because of my hedging, I have actually selected a basket of stocks, but if quantitative actions such as selling high and buying low every day can help me reduce costs, then for me, hedging will have an additional enhanced income.

Q6: Do you think the rapid development of quantitative analysis will have an impact on the entire market or subjective factors?

A: First of all, I still want to prove the name of quantitative. Although I am not from a quantitative background, and we do not have a professional team to edit quantitative strategies ourselves, I think quantitative is a tool and a direction of development, and we don’t need to avoid it. Why? Because the market may be bad now, so many people will mainly look for some reasons and attribute some things, and more attribution should be internal attribution. We should find out where we can do better to deal with the current market, rather than saying that it is because of this person or that tool that caused my loss.

Secondly, quantitative analysis is not something that was invented in China. It has been done in the United States for many years, and the US market is doing very well now, rising steadily. So quantitative analysis cannot be blamed for this. If you come to the conclusion that "quantitative analysis must have caused the market to be bad", I think it seems impossible to draw such a conclusion, so first of all, it cannot be blamed for this.

As for its function, I just said that I think it has good points and I can cooperate with it. But you asked whether quantitative has an impact on the market. Yes, it does. Especially when the securities lending has not been stopped, a part of the funds can actually realize a disguised T+0 transaction through the combination of securities lending. Then a big advantage of the machine is that it reacts faster than humans. Including the high-frequency trading we see in the market now, the so-called high-frequency trading means that they use a very fast speed. When he sees it, people haven't seen it yet, but he has already captured the price difference. And because of his previous securities lending, he can do it many times a day. And everyone thinks that the unfair point is "I can't do it, but you can." So the securities lending was suspended some time ago. Although it only involved a scale of less than 30 billion, it did involve fairness issues.

But quantitative trading is indeed, due to its fast mode, investors who want to do short-term trading in this market have encountered more competitors. In the past, they were competing with people, but now they have to compete with machines, so the environment is not so friendly. And it is often possible that the machine is relatively fast. Of course, whether it really affects trading depends on what you do. In the short term, it will increase some market noise, or the frequency of fluctuations. But if you really think clearly, if I extend the investment cycle, this noise can actually be eliminated.

In fact, I have pointed out two paths for you in this market. You can either go for the extremely fast direction and rely on machines, or you can go for the slow pace. You can make money in both directions, it just depends on your own positioning. If you go for the slow pace, you need to calm yourself down and lay a good foundation for your inner strength. The inner strength is your understanding of the industry, the understanding of individual stocks, and the understanding of the market. Gradually, when your inner strength is very deep, the small noise outside will not be a disturbance to you, and naturally you will be the final winner. So it is not because of the quality of the tool, but it depends on how you treat it first, and how you know yourself second, and use it together.

Q7: Will quantification completely replace subjectivity in the future?

A: I personally think that this may be a bit far-fetched. First of all, as far as we can see now, in the United States, which is the world's leading country in artificial intelligence, we have not seen such an artificial intelligence stock trading system. Otherwise, in the US market, those famous hedge funds will definitely try this direction first, so everyone is still using different ideas to do it. Another thing is that there are tens of thousands, millions, and hundreds of millions of people operating in the entire market of my bureau. This is the result of a mass game. The final result of this thing is not a simple cause and effect relationship. If playing Go is like the Newtonian mechanics we learned in junior high school, a force and a corresponding reaction force, it corresponds one to one, then the result of the mass game is a bit like quantum mechanics. In quantum mechanics, you don't know where a force will suddenly appear, which will affect all your previous judgments, unless you have the ability to take everyone's predictions into consideration, in fact, I think it is impossible.

Q8: What do you think of the performance of the A-share market in the past two years?

A: I believe that everyone may not feel very good. In other words, the physical feeling is particularly bad. I think there are two factors. The first is that our market is indeed falling, and the loss effect is relatively large, which leads to a relatively poor physical feeling. The other is the comparison effect. Not long after I entered the industry, I encountered the financial crisis in 2008. At that time, the whole world was falling. After the financial crisis, the United States was also falling, Europe was also falling, Japan and South Korea were all falling, and we were also falling. At that time, we said that it was a financial crisis, and everyone was falling. It would pass if we endured it, and maybe everyone would rise by then. But in the past two years, we have found that the peripheral markets have hit new historical highs and are all rising, while we have been standing still for 10 years. At this time, many negative effects of comparison are more prominent.

There was a situation in the past two days. We launched a Saudi Arabia ETF. It actually reached the daily limit on the first day and continued to reach the daily limit on the second day. We found that its trading price was actually far overpriced. We also encountered the Nikkei 225 Index ETF before. As for now, people’s confidence in our market is actually getting lower and lower under such a comparison effect. So in such a situation, the impact of investors’ confidence and the physical impact of holding stocks are actually worse than a simple bear market. So in the past two years, investors have had a hard time in this place. Not only has the internal market itself fallen, but there is also a psychological gap caused by comparison, which is a double blow.

Q9: What do you think is the reason why A-shares have not been rising?

A: I think the reasons why A-shares cannot rise are both internal and external. As for our internal reasons, in fact, our A-share market has been a market that focuses on financing and neglects investment for many years. Its greater role is to help some listed companies raise funds to solve capital problems. We have found that a large number of listings and financing have been raised in recent years, but the metabolism function of our entire market has always been imperfect. You see, we have listed so many companies, but how many have been delisted in total? The delisting system is not perfect.

I compare this market to a person. You need to have metabolism. In fact, I strongly believe that capital should serve the real economy. This is absolutely correct. But at the same time, you need to provide a good investment environment for investors in the secondary market and form a mechanism for the survival of the fittest. Otherwise, in the past, financing was emphasized over investment, especially around the entire IPO. Over time, a phenomenon of bad money driving out good money will form. Really valuable companies will be ignored, and everyone will speculate on junk stocks because they will not be delisted anyway, so everyone can gamble.

After the bad money drove out the good money, you can see that although the scale of the market is constantly expanding, the volume is expanding, but the quality has not increased. So our index has always remained at 3,000 points. But this 3,000 points is different from the 3,000 points ten years ago. If we look at the total market value, it has expanded many times. But why does the expansion of the total market value of our A-shares and the rise of our index not form a related proportional effect? ​​This is what I just said, the bad money drives out the good money. A large amount of resources and capital are ineffectively allocated to some junk companies.

Now we see some clearing actions after the "National Nine Articles". I think the general direction is right. These actions have dug out some cancers in the body, and the subsequent funds will have a real effect on our good companies, and then we can see our index slowly rising, and getting higher and higher. Because your nutrients are not absorbed by these cancers, but really nourish where they need them. So this is our internal problem. If we can change the proportion of financing and investment a little, and put some of the excessive weight of financing on investment, then our market will be much better.

What about external issues? Since 2018, we have experienced a trade war with the United States, followed by a technology war. Now we are experiencing a financial war with the United States, especially the Jewish capital behind it. In terms of results, we are still in a defensive stage. Because the US manufacturing industry is hollowed out, it can't get much advantage in the trade war. After all, we are now a manufacturing power. Although we lagged behind in the technology war at the beginning, we have gradually caught up in the technology war in the past two years, especially after Huawei broke through the blockade of some high-end chips. In fact, we have enough in this area. But sorry, the Americans' technology data in recent years has all been on finance, and now they have become a financial empire.

So in the financial game, why do people feel so bad about the entire market? There is a joke called "anyway but China", which means "investment circle around China". He pulled all the stock markets around China to historical highs, and you are at a low point. He continuously raises interest rates to form an interest rate spread to drain your funds. After the water is drained, your liquidity becomes increasingly depleted, and your market's resistance to decline becomes increasingly weak. The combination of factors actually caused these specific periods of the periphery, and also caused our current A-share market to be under pressure and difficult.

Q10: Where do you think investment opportunities will appear in the second half of the year?

A: When we choose stocks, we often look for a safety margin. The biggest safety margin is that the stock has fallen too much. That is to say, even if you are optimistic about the company, it has risen 5 or 10 times, and the market may have already been optimistic about it. If we want to enter this market, we always hope that more and more people will be optimistic about it, and the entire market will have room to rise. If I am the last person who is optimistic, then I think the investment result may be average, which is not very good.

So at this point in time, first of all, objectively speaking, although our market is very sluggish, many sectors and industries have been falling for several years, two or three years, not just a few days. But in fact, in this process, some stocks, some industries, and some sectors have actually begun to slowly fall out. If we look forward to the second half of 2024, I think there are two directions, one is the offensive direction, and the other is the defensive direction.

In terms of the offensive direction, we should still look towards hard technology. Looking at the "Eight Measures for Science and Technology" that we recently issued, including what we see now in the financing market, the companies that are given priority for listing are all hard technology companies. Many listed companies have withdrawn recently. In fact, I have taken a look and found that they are all traditional companies that have nothing to do with hard technology. They are not the companies that we need to attack in the bottleneck.

So in terms of hard technology, I think the direction we choose must match the country's medium- and long-term strategy. Our current strategy is to upgrade the industry. The reason is very simple. With the aging of China's population, the next generation or two will no longer be able to do such hard work like our past generations and use low value-added human sea tactics to create profits. The future generations may not be willing to do a lot of hard work that the previous generations did. Then there is only one way, our country must increase the unit's production efficiency, which means that our industry must be upgraded and the added value of the things we make must be high.

In this process, we must have breakthroughs in some aspects of hard technology. We can no longer look for them in low-end added value. In fact, we have also seen this year that our export data is good, but if you look closely, the export structure has undergone major changes. For example, new energy vehicles, including the large-scale expansion of China's current exports of chips, so from this perspective, the hard technology direction must be a medium- and long-term focus. In addition, there are many small companies in this field that have the potential to become dark horses. So this is an offensive line, because once the market cooperates, their elasticity is relatively large and fast.

From a defensive perspective, from a medium- to long-term perspective, I think some industries such as medicine are very optimistic about the opportunities in the next three years. Because the pharmaceutical sector, its peak was in 2021, and at that time, due to some policy reasons, such as centralized procurement, the entire industry suffered a double kill of Davis. But we also found that their performance at the end of last year, the first quarter report of this year, including the half-year forecast, we found that their stock price has fallen to the price of about 7 years ago, but the performance has actually returned to the high level of three years ago. That is, the performance has come out, but his valuation has been killed far.

Another aspect is that the biggest trend in China is the aging of the population structure, which is difficult to avoid. The aging of the population structure means where the largest population base of consumption is in the country. Therefore, spending on health care is a rigid demand, a real rigid demand. In this process, we believe that the population structure determines the entire pharmaceutical industry in China. It will definitely not be an industry that will collapse, and its future potential will even be very huge.

In terms of indicators, there are two indicators. The first is the price-to-book ratio, and the second is good cash flow. Cash flow, sufficient cash flow reserves, and operating cash flow have always been positive. You don't have to worry about the death of such a company. We also found that in the pharmaceutical sector, many companies meet these two conditions at the same time. I will share another data with all investors. If we take a closer look at the eight strongest companies in European stocks, many of them are pharmaceutical companies. In the past 30 years in the US stock market, we have always said that one place to find ten-fold stocks is technology stocks. There is another sector that produces ten-fold stocks that are no less than technology stocks, that is, pharmaceutical stocks, so we can learn from others' experience.

Q11: How many stocks are there in your stock pool?

A: I have about 200 stocks in my stock pool. I will put them in my stock pool because I will let the machine scan them for me at the end of each day. First, I will put the stocks that I like in the stock pool, and then sort them by sector and industry in the stock pool to see if there are any common things. The third step is to eliminate those stocks that I think have problems. I will observe them repeatedly within the 200 stock pool. In fact, after a long time, I will basically include some core varieties of various industries in it. So whenever I encounter some abnormal opportunities in some sectors, my first reaction will be to see their core varieties and whether the leading companies have responded. Although I may not be able to catch the biggest dark horse, if I buy leading stocks, I can generally outperform the average and achieve an average excess return.

Q12: Supervision of the entire fund industry is becoming stricter this year. What do you think of this regulatory attitude?

A: From a compliance perspective, I think that going through industry adjustments is not entirely negative. So I want to talk about our experience as practitioners in the private equity sector. In the industry, some peers are indeed eliminated naturally due to market fluctuations, but a considerable number of them are also eliminated due to failure to meet regulatory requirements. This means that we can gain a foothold in this industry not entirely because of how outstanding we are, but because we stick to the bottom line of compliance. Many times, we are waiting for those peers who ignore compliance to make mistakes, so that we can stay in this industry relatively steadily.

The ultimate victory in the market belongs to those who can persevere to the end, that is, "the last one standing is the winner". Only those who stay will have the opportunity to welcome the dawn of the future. To stay, you must first ensure that you are on the track of compliance. Therefore, from the current severe compliance situation, even if some institutions have not been eliminated due to market factors for the time being, if they ignore compliance requirements, they will eventually face the fate of being eliminated. For us, this is actually an indirect way to win in the competition with peers. I believe that the future regulatory trend will only be stricter, which is not only from the perspective of compliance, but also an inevitable requirement for the healthy development of the industry.

Q13: Do you think the number of managers in the industry will continue to decrease?

A: I think compliance is really critical in the current situation. You know, some people in our industry have been thrown out because of market fluctuations, but there are also many people who have tripped themselves up because they did not keep up with the pace of supervision. So, the reason we can stand here is not because we are so great, but because we have always kept the compliance line and did not let it break.

Many times, we are like spectators standing on the sidelines, watching our peers being sent off one after another for fouls, while we silently abide by the rules and wait for the end of the game to see who will have the last laugh. After all, this market is like a marathon. Only those who can run to the finish line are the real winners and can see the sun tomorrow.

However, if you want to stay, you have to keep compliance tight. The supervision is getting stricter and stricter. Those who may have been able to get by before may not be able to do so now. This is actually a test for us, a way to compete with our peers. But I think this is a good thing, because only when everyone abides by the rules can the market develop more fairly and healthily.

So I guess that the supervision will be strengthened in the future, and there will be more and more compliance actions. We must be prepared and follow the policies closely, so as not to become the one who is eliminated because of non-compliance. After all, we all want to work in this market for a long time, right?

Warm reminder: The above content is for reference only and does not constitute investment advice. The market is risky and investment should be cautious.

"Private Equity Club" is jointly launched by NetEase Finance and Zemujia.