Chapter 56 4. Be conservative during the Great Depression

●The successful experiences of the "Four Heavenly Kings" are: during the Great Depression, first, the ratio of debt to capital was low; second, a large amount of cash was stored; third, investment was stopped. ● Conservation is the key to his success in this life. ●In the depression period, the market trend is just the opposite, it goes down, and it is difficult to buy the bottom if you want to.When exactly you don't know. So I once asked an entrepreneur among the "Four Heavenly Kings" in private, what is your philosophy of success in your life?I want to convey this to the readers, he said that "Conservation is the key to his success in this life".I believe that "conservative" is also the common successful experience of the "Four Heavenly Kings".And conservatism can be reflected in three aspects: first, low capital-liability ratio; second, a large amount of cash reserves; third, stop investing.This is the mentality of people who have experienced the Great Depression, they are very conservative.So I think in their minds, an outstanding entrepreneur, no matter whether you are the richest man or not, no matter how much money you earn, you must be the best risk manager.Only the best risk managers can make a business sustainable.Therefore, it is said that some of their companies can still operate well after decades, because their risk management in the past was particularly good.

I asked him again, I said which item of financial statements is the most important in your business operation, and he said that it is stable cash flow, not how much money you can make.How to achieve stable cash flow?According to our research results on their companies, they did it through two methods, and the "Four Heavenly Kings" are exactly the same.I was extremely shocked by this point. The first is called cash base, and the second is called project or industry hedging. Through these two methods, a stable cash flow can be achieved. What is a cash deposit?As an example.I took Lee Shau Kee’s real estate company as an example. I analyzed the data of Henderson over the past 20 to 30 years. I found that Henderson’s cash flow was negative in the past 5 years, which means that its capital chain was broken in the past 5 years. , but it didn't close down.May I ask all real estate developers, if your capital chain breaks, how long can you last?As for why Lee Shau Kee can survive for 5 years, the result of my analysis is that he has two very interesting assets, one is gas and the other is leasing. The cash flow of gas and leasing has been rising steadily during those 5 years. Therefore, although the cash flow of real estate development has been negative for 5 years, when I add the cash flow of real estate development, the cash flow of gas, and the cash flow of leasing together, there has been no one in the past 20 or 30 years. Years are negative, but everything is positive. This is called cash flow bottoming.

So I hope that through this book, I can give these two golden words of advice: one is conservative, and the other is stable cash flow, to all readers.But let me tell you, it is too late for a stable cash flow at this time, and it is impossible for you to hedge projects in the short term, and it is also difficult to create a so-called bottom line for cash flow. The only thing you can do is to achieve three Big indicators: low debt, high cash flow, stop investing. Such conservative people, like Lee Shau Kee, are still too optimistic in this financial crisis, so Lee Shau Kee, the Asian stock god, also stumbled a little.Buffett is also too optimistic and bought the bottom too early.It is also because all of us may underestimate the impact of this financial crisis, and this is a big problem.And you can see that Li Ka-shing himself often said that you should pay attention to how to trade stocks. This is all official language, and we all say so.The problem is that he is relatively optimistic about the overall macroeconomic trend.For example, under macro-control, he thinks that China's stock market or property market should not be too bad, but the actual situation is very bad.

Because it is now a depression period, and the stock price trend during the depression period basically goes down, and the ups and downs are volatile, so it is difficult for you to copy to the bottom.Why do I say that your investment strategy during the recession needs a big change?Because you can only make money during the bubble period, because during the bubble period, you can buy it at any time, and the market will always go up anyway.However, during the depression period, the market trend is just the opposite, it is going down, and it is difficult for you to copy to the end.You don't know exactly when, and you don't know when it will be low. No one knows whether it is possible to get below 1000 points.So it's hard to pick the bottom.