Buffett Reveals the Secret to A-Shares: Invested 100,000 Yuan in Haitian Flavor & Food Stock 5 Years Ago with a Long-Term Strategy—How Much Profit Was Made? The True Meaning of "Money Making Money"

(Source: A-shares Collection)

Warren Buffett once said, “Be with great companies.”

Since we don’t have the ability to run a company, we need to find high-quality companies, gather a team of talented people, and then entrust our assets to them at the right price.

Therefore, the most important aspect of value investing is choosing excellent companies. But how can we identify these high-quality companies among hundreds or thousands of firms?

Peter Lynch provided an answer: as long as you put some effort into researching stocks, ordinary investors can become stock investment experts, and their stock-picking results can be as outstanding as Wall Street professionals.

By paying more attention during work, shopping, visiting exhibitions, or eating out, or by focusing on emerging, promising industries, you can find stocks that make big money.

This method—using common sense to select stocks—is simple enough that even elementary school students can learn it. However, adults often think it lacks “technical content” and is too “simple,” which leads them to reject it and, in doing so, also reject wealth.

1. Use Common Sense to Pick Stocks

Most high-quality companies are accessible in our daily lives. For example, Moutai at banquets; Ping An Insurance, which almost everyone pays premiums to each month; the China Merchants Bank card in your wallet; Vanke in real estate; Suning Electronics in retail electronics, and so on.

Using common sense to pick stocks is straightforward and requires no advanced economic knowledge.

Evidence shows that human nature tends to simplify things. The world is inherently simple; we adults just complicate it.

2. Three Key Questions About a Company

(1) Will this company still exist in 10 or 20 years?

(2) Can its profits continue to grow in the coming years?

(3) Does the company have good mechanisms and management systems?

3. Long-term Vision and Patience Are Needed After Buying High-Quality Companies

Buying a good company doesn’t mean its stock will immediately rise. On the contrary, during market downturns, it might fall more sharply than others; during good times, it might rise more slowly.

Because good companies often lack sensational stories or hype, appearing as plain as water, their short-term stock prices are unlikely to show immediate gains. But the difference between a high-quality company and a junk company is that the stock price of a good company, after falling, will eventually recover in a few years, whereas a poor company’s stock may never rebound.

Therefore, investing requires a broad vision and patience. The farther you look, the more you can earn. Those who wait longer and see further will earn more, rather than obsessing over short-term price fluctuations day by day.

Why has Haitan Flavor Industry developed so successfully?

1. Scale of Production

From 2000 to 2017, Haitan Flavor Industry invested over 3 billion yuan in technological upgrades to expand and optimize production capacity, achieving an over 18% compound annual growth rate over more than a decade.

2. Emphasis on Branding

In the late 1980s and 1990s, when competition was fuzzy and development ideas unclear, Haitan Flavor Industry began building its corporate visual identity and recognition system. In 2001, it launched major advertising campaigns during prime time on CCTV. In 2013, it embraced the concept of “shaping brands through culture” and established a large industrial tourism project—“Yami’s Sunshine Castle.”

3. Refined Management

Haitan Flavor Industry has optimized order planning, reduced inventory, and explored potential capacity, promoting balanced production and sales, and fully integrating internal and external resources to achieve healthy interaction across supply, production, and sales.

4. Multi-Category and Major Product Advantages

Its soy sauce, oyster sauce, fermented pastes, and other categories are market leaders, providing a foundation for future growth and reducing risks. Years of market cultivation have nurtured key flagship products, supporting further expansion of distribution channels and retail outlets.

5. Scale of Distribution Channels

In traditional industries, channels are crucial. Haitan Flavor Industry’s distribution network covers all 31 provinces, over 300 prefecture-level cities, nearly 1,000 counties, and 330,000 retail outlets nationwide. Its products are also exported to over 60 countries and regions worldwide, becoming a staple in overseas Chinese communities. A strong dealer system supports rapid development.

What would be the dividends and returns if you held 100,000 yuan worth of Haitan Flavor Industry stock for five years?

First year: On January 9, 2015, opening price was 41.57 yuan. Buying 10,000 yuan worth of stock, you hold 2,400 shares with a balance of 232 yuan.

On April 15, 2015, 10 shares split into 8 shares, and an 8.5 yuan dividend was paid. Dividends: 240 * 8.5 * 0.9 = 1,836 yuan. The opening price was 38 yuan, insufficient to buy a full lot, but after the split, holdings are 240 * 8 + 2,400 = 4,320 shares, with a balance of 2,068 yuan.

Second year: On April 15, 2016, 10 shares paid 6 yuan, dividends: 4,320 * 6 = 2,592 yuan. Opening price: 30.38 yuan. Buying another lot, holdings become 4,420 shares, with a balance of 1,622 yuan.

Third year: On April 25, 2017, 10 shares paid 6.8 yuan, dividends: 4,420 * 6.8 = 3,005.6 yuan. Opening price: 35.23 yuan. Buying 100 shares, holdings: 4,520 shares, balance: 1,104.6 yuan.

Fourth year: On April 26, 2018, 10 shares paid 8.5 yuan, dividends: 4,520 * 8.5 = 3,842 yuan. Opening price: 62.8 yuan, not enough to buy a full lot, holdings remain 4,520 shares, balance: 4,946.6 yuan.

Fifth year: On May 7, 2019, 10 shares paid 9.8 yuan, dividends: 4,520 * 9.8 = 4,429.6 yuan. Opening price: 95 yuan, insufficient for a full lot, holdings: 4,520 shares, balance: 9,376.2 yuan.

As of today, January 9, 2020, Haitan Flavor Industry stock closed at 107.79 yuan. The total market value of holdings: 4,520 * 107.79 + 9,376.2 = 496,587 yuan.

Based on this data, the total dividend income over five years from an initial 100,000 yuan investment is 1,936 + 2,592 + 3,005.6 + 3,842 + 4,429.6 = 15,805.2 yuan. The total dividend yield over five years is 15,805.2 / 100,000 = 15.81%.

Total five-year return: 496,587 / 100,000 = 496.59%, profit: 396,587 yuan.

Sniping Limit-Up Strategy “Two-Board Confirmed Leader”:

A leader stock is the one that first rises during a strong sector rally, driving other stocks in the sector. Usually, large funds are involved. The rise is significant, and once it takes off, it’s hard to catch!

1. Five Conditions for a Leader Stock

Indicator 1: Must start from a limit-up; stocks that don’t hit the limit-up cannot be leaders.

Indicator 2: Usually not high-priced, as high-priced stocks lack speculative space, generally not exceeding 15 yuan.

Indicator 3: Circulating market cap should be moderate; large-cap and micro-cap stocks are unlikely to be leaders, suitable for big funds and retail chasing.

2. Confirming Leaders with Two-Board Strategy

Core factors: 1. New themes 2. Big concepts 3. High popularity.

Two-Board Shrinkage

The next day after a two-board surge, stocks often open high, so caution is advised. If volume shrinks, it’s better to wait and watch, as risk outweighs profit.

Two-Board Volume

If the next day opens higher with volume, it’s more reassuring. If it continues to rise with volume and hits a limit-up quickly, surpassing the first day’s volume, it may be a good buy. Active volume increase indicates high participation and potential profit.

Choosing Stocks for Two-Board Strategy

For “monster stocks,” once they start, they often hit consecutive limit-ups. Top funds usually enter at the second limit-up. This is the essence of the “Two-Board Confirmed Leader” strategy.

Analysis of the 1st, 3rd, and 4th Boards

Many stocks only have one limit-up per day, making it hard to identify the leader. Once a stock hits the second board, it may become a leader.

Although the 3rd and 4th boards are more recognized by the market, most investors avoid entering at this stage. The selling volume is often very small, and these stages usually see shrinking volume unless top-tier funds are involved. The second board is crucial—many explosive stocks take off from here.

Practical Tips:

First, understand why a stock is rising. Pay attention to the “Dragon and Tiger List” (龙虎榜). I’ve written articles on this before. Focus on new stocks, small caps are less trendy.

Second, aim to be the leader. The leader’s stock usually gains the most. To control risk, you can follow the trend, but don’t expect too much; sell promptly when the trend reverses.

Big Long Legs Low Buy

Similar to the “First Yin” pattern, this strategy is based on the expectation of a rebound of the leader stock. A complete cycle of a top leader generally includes: start, fermentation, consensus, acceleration, divergence, rebound, and top. The timing varies with sector strength. Here’s an example.

Summary: The leader stocks of the main sector that are fermenting usually have at least two consecutive limit-ups. The previous day’s profit-taking or chasing traders are often trapped during the water-down phase (usually lasting the whole morning), giving early participants time to cut losses or take profits. The remaining funds are usually confident. In the afternoon or late trading, the stock often surges significantly—hitting limit-up or pulling back after a high. The amplitude often exceeds +6 points, indicating strong stock volatility. The daily K-line forms a small upper and lower shadow with a positive body, continuing the upward trend. The buy point is not on the first day (which is hard to judge), but on the low point after the second day’s open, as stocks often undergo a -2 to flat correction during this phase. Buying in this zone offers a good risk-reward ratio. If there’s a quick surge with high turnover, chasing or chasing the board can also work (though this is not the focus here). Successful low buying results in the “Big Long Legs” pattern. Since this is essentially the first rebound, the sell point is when the stock can no longer continue the streak, and it’s time to take profits.

Understanding and proper application of technical analysis are key to success

Practice shows that the key to applying technical analysis is a correct understanding of its principles. I believe it’s important to grasp the following:

(1) Technical analysis is a mirror; history repeats, but not in a simple way.

It allows us to infer future market changes based on past data. The founders of technical analysis believe “history repeats,” but this repetition is not a simple duplication. For example, the Shanghai Composite Index experienced a 7-year bull market with five rising waves, where waves 1, 3, and 5 had five sub-waves each, but their internal structures, durations, and lengths varied.

(2) Technical analysis mainly uses statistical methods; results are probabilistic, not absolute.

This is crucial. It helps you approach each analysis objectively and dialectically, avoiding some common mistakes. Market predictions are just that—predictions. They can be right or wrong. Use them as a basis for investment decisions, but always prepare for possible errors. Stop-loss measures are essential to prevent analysis errors from causing significant losses.

(3) Every technical analysis method has strengths and weaknesses and is suitable for specific market conditions.

For example, trend indicators (like moving averages) work well in trending markets but are less effective in consolidations. Oscillators (like RSI, stochastic) are better in sideways markets but less useful in trending phases. No method is inherently better; their applicability depends on the market environment. Investors should understand each method’s characteristics and choose accordingly.

The 3 "No"s for Market Success

In the stock market, ups and downs intertwine, as do pain and joy. Some investors, failing to secure substantial profits, become discouraged. Once discouraged, they tend to develop pessimism and fear, which hinder success. But if investors cultivate a good mindset and learn some psychological analysis, they can face all challenges.

1. No Fear

An everyday example: two bicycles meet on a narrow path. If you’re overly afraid, you’re more likely to collide. Stock trading is similar: there are only two outcomes—profit or loss. When your indicators signal a buy point, buy decisively; when it’s time to sell, sell without hesitation.

Otherwise, you’ll be caught between fear of losing and greed for more, which prevents progress. It’s better to deposit money in the bank and have the courage to go all in, ignoring the crowd’s opinions, to hope for a successful investment journey.

2. No Regret

See the gains and losses as common battlefield experiences. Set profit-taking and stop-loss points and ignore others’ opinions. That’s the true meaning of “no regret.”

To be a successful investor, you must learn to accept losses without damaging your self-esteem and keep emotions stable. This is the path to success. When profitable, stay humble; when losing, don’t despair. Success and failure are both part of the journey.

3. No Rush

As the saying goes, “Haste makes waste.” In the stock market, patience is essential for greater gains. Many investors fear missing out on profits and ignore analysis and prediction, blindly trading. When they finally catch the trend, big market changes often lead to huge losses. Patience is key—don’t rush into trades.