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How do we find out the long and short targets?

November 10, 2016

 

Companies that are suitable for long position generally need to have the following five positive characteristics.

• The company has a “moat” - ensuring a high barrier to entry
• Management integrity and excellence - Ensure that shareholders' interests are above and will not be fraudulent
• A large space for industry development - ensuring high growth potential for the company's business
• Equity incentives are in place – ensuring that companies and investors are aligned with their interests and demands
• The stock price is “seriously undervalued” – ensuring a higher margin of safety after buying

 

Conversely, for companies with the following negative characteristics, we will consider sell short

• Industry faces policy uncertainty, such as companies that rely heavily on government subsidies or access
• The industry or company has a seemingly attractive concept, but the entry barriers to the business are low and the competitive landscape may deteriorate rapidly
• The corporate governance structure is unreasonable, large shareholders may harm the interests of minority shareholders, or the financial statements are clearly fraudulent.
• The stock price is seriously overvalued and deviates significantly from the reasonable valuation range

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