[Li Ziran said] Let’s talk about business prediction and investment logic from the Luckin case

Posted by: XinYe 4 years, 9 months ago

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Looking at business forecasts, investment logic and related thinking from the Luckin case

In his first video after the epidemic improved, Li Ziran conducted an in-depth discussion of the Luckin incident from aspects such as business forecasts, Luckin Coffee story, Luckin model and value investment.

The logic of business forecasting

• Differences in opinions between professionals and the public : Luckin’s accident has caused the public to be keen on judging whether predictions are correct, while professionals value probability. The essence of business forecasting is to use business understanding to build an analysis model, and the output is a probability result. Because the business is complex and there are many uncontrollable factors, such as the ability of the founder, black swan events, etc., data fraud is even more difficult to predict.
• Components of Probability : The probability of a business forecast consists of the probability that the forecast is accurate, the expected rate of return, and the expected time. Investors at different investment stages have different requirements for probability. For example, angel VC investment has a lower success rate but a higher expected return, while secondary market investors need to be more confident before making a move, and any prediction must have a time limit.
• Pay attention to the forecasting method : Compared with the forecasting results, you should pay more attention to whether the forecasting method and business model are scientific and rigorous, and whether the judgment basis and method are reasonable. Li Ziran took his prediction of Ruixing as an example. Although some of his previous predictions seemed correct, he admitted that he lacked understanding of the new catering industry at the time and had problems with his analysis methods and models. He emphasizes the importance of thinking and making videos is to share and improve your thinking, not to convince the audience of simple conclusions.

The story of Luckin Coffee

• Common doubts about Luckin Coffee’s story : Many articles analyzing Luckin Coffee believe that Luckin Coffee’s story about the potential of the Chinese coffee market is unreasonable. The reasons include that Chinese people drink less coffee and more tea, the per capita caffeine intake is not low, and milk tea is more popular in China.
• What’s exciting about Luckin Coffee’s story : From a business perspective, it’s commonplace to “profit at the expense of others and sell dog meat.” The purpose of Luckin’s story is to get investors to pay for it without preventing it from selling other products. Luckin Coffee has been aiming to IPO in the United States since its establishment. Telling the coffee story is easier for American investors to understand and is easier to spread than other Chinese online stories. In addition, the coffee industry also has Starbucks as an excellent benchmark. Luckin brands itself as a challenger to Starbucks and has a certain market value. This idea is worth learning from.

The feasibility of the Luckin model

• Feasibility of the new catering direction : The general direction of the new catering is feasible. The success of brands such as Heytea is an example. Luckin’s failure was caused by many factors such as product and marketing, rather than track issues.
• Store coverage and takeout and self-pickup models : There is market space for a large number of store coverage and takeout or self-pickup models. The food delivery market is growing rapidly. People tend to choose nearby stores when ordering milk tea. If the brand can cover a wide range of markets, it can provide products with stable quality and potential for development.
• The rationality of Ruixing’s listing : Ruixing’s listing itself is not to cut leeks. As long as there is no fraud, there should be no problem. There are many ways to invest in the market. There are other ways to invest besides value investing. Luckin stock provides the market with an option. In addition, Luckin Coffee also offended the investment circle because it did not provide VC investment opportunities in its early financing. This is one of the reasons why it is criticized. But human nature dictates that if there is an opportunity similar to Luckin's, there will still be many entrepreneurs and VCs willing to participate. .

Views on value investing

• Value investing is not the only right thing to do : value investing is just one investment strategy. Many people now blindly admire it. Li Ziran expressed doubts about this, thinking that this might be some people's self-comfort after being trapped. Value investing is not lofty, and it is difficult to verify or disprove. Many so-called value investing masters cannot be said to be successful before they are fifty or sixty years old.
• Difficulties and requirements of value investing : Value investing requires in-depth understanding of the company, professional knowledge, industry judgment and strong background investigation capabilities. In reality, it is difficult to tell whether data is true or false, and it is also difficult to detect company hidden dangers. Professional background check agencies also have limitations. Investors who see everything as well as Buffett are rare. Ordinary people may only understand value investing.
• Buying points of value investing : The key to value investing is to buy at low prices and resist risks. Buffett has been waiting to buy Coca-Cola for years. Internet companies generally have high valuations and high long-term holding risks, making it difficult to make value investments. Leading Internet companies such as Tencent are also difficult to measure using value investment. In Li Ziran's view, some people claim to be making value investments in YY, but they are actually growth investments.

Finally, Li Ziran mentioned that Ruixing has not completely cooled down, and there are also cases in history where Ruixing turned losses into profits after massive fraud. At the same time, the impact of the Luckin incident on Chinese concept stocks also deserves attention. Chinese concept stocks have had some problems in the European and American markets before, which has affected the overall image to a certain extent.

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