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This article is from WeChat official account: Riding in Xizang (ID: gobybike). The author: tao. The original title: tao | On Information Asymmetry · 2 Information Interpretation Asymmetry. The title is from Visual China

Article Summary

This article explores the issue of asymmetric information interpretation, emphasizing the importance of individual cognitive frameworks and how to change destiny by changing cognitive frameworks.

• •  Asymmetric information interpretation leads to investment misconceptions and the risk of being deceived

• •  Different cognitive frameworks lead to differences in information interpretation, affecting destiny

• •  Buffett's investment strategy case analysis, showcasing the key to successful investment

People can only earn money within their knowledge.

Most people's complaints about information asymmetry mainly lie in the inability to obtain insider information, which was discussed in the previous article (see "Learning to Go from a Problem Solver to a Problem Solver" for details).

Asymmetric interpretation of information

1. A deeper asymmetry is the asymmetry in information interpretation. Without rational cognition, it is easy to be deceived by some rumors. Individual investors blindly follow the trend and invest at a loss, college students fall into the trap of online loans, working people are deceived by high return P2P projects and lose the wealth they have worked hard to accumulate over the years, and are deceived by scumbags who take advantage of women's wealth and sex

Bank halls, community bulletin boards, mobile text messages, and the streets are filled with various anti fraud knowledge popularization. You can say how clever these scams are. In the eyes of rational people, it is incredible to be deceived, but it is because many people are deceived for various reasons.

2. What leads to asymmetric information interpretation is essentially the different cognitive frameworks of each individual. From the perspective of artificial intelligence models, it is the difference in training data, training methods, and reasoning logic. As the saying goes, "the same rice breeds a hundred different people.". If artificial intelligence can only be developed by humans at present, the lucky thing for humans is that they can actively change their cognition and thus change their destiny.

3. Returning to the case of Buffett investing in Apple, during Steve Jobs' lifetime, although Apple had risen from the brink of bankruptcy to become a great innovative enterprise leading the technology trend, developing revolutionary products such as the iPod, iPad, and iPhone, Buffett did not invest in Apple. After the death of Steve Jobs, Cook took over. Despite the emergence of strong competitors like Huawei in the market and Apple's lackluster innovation, Buffett gradually bought a large amount of Apple stocks starting from 2016.

As of the end of 2023, Berkshire Hathaway owned approximately 6% of Apple's shares, valued at $174 billion at the time, which is approximately four times the size of Berkshire's second largest public offering (Bank of America). Berkshire has become Apple's second largest shareholder, second only to Pioneer Group.

Betting on Apple has brought substantial returns to Buffett. Buffett stated in 2022 that Berkshire's cost of holding Apple shares was only $31 billion. Since the beginning of 2016, Berkshire's investment has increased by nearly 620%.

Buffett once said: When choosing between making money and sleeping, he always chooses the one who can sleep well. It is obvious that Internet enterprises that take innovation and adventure as an important evaluation factor of valuation do not conform to the idea of the old man that they can sleep in peace. Even if genius such as Jobs and revolutionary products emerge in endlessly, who knows whether he will repeat the mistake of being driven by the company he founded in 1985. In the world of innovation, genius and madman are often just one thought at a time.

5. When Jobs died, the time came to 2016. Although Cook, who took over Apple, was confronted with roast about his lack of innovation and inability to take over Jobs, core members left in succession, and the rise of smart phones of China Huami OV, under its steady operation, the ecosystem of iPhone+app store built an extremely strong wall, and suddenly became a value investment stock in the eyes of the old man who could buy a decade's sleep.

6. Faced with the departure of Steve Jobs, some people may interpret it as Apple losing its soul and innovation ability and leaving, while Buffett interprets it as a tinkering without genius. As long as there is a reliable CEO, the Apple ecosystem created by Steve Jobs can steadily develop, overcome inflation, and be worth investing heavily.

7. Asymmetric interpretation also stems from contradictions in some relevant information. Taking Luckin Coffee, a conscientious company mocked by netizens as "going public in the United States to cut American leeks and subsidize Chinese people to drink coffee," as an example, in 2020, Luckin Coffee faced the punishment of being delisted by NASDAQ due to financial fraud. Its stock price dropped from a high of $50 to $1.38, and its total market value dropped from a peak of $10 billion to $347 million, which is a black swan level bearish news.

Another piece of information is what I personally feel. In some of my WeChat groups, more and more people are starting to share Luckin Coffee coupons (some used them before Luckin went bankrupt, some supported ethnic enterprises, and some took advantage of the excitement to check in). There is also an increase in photos of Luckin Coffee shared on social media, and a large number of self media are promoting Luckin Coffee as a conscientious ethnic enterprise that "subsidizes Chinese people drinking coffee by cutting American capital leeks".

From the perspective of Internet marketing communication, this is a very good news to turn the Black Swan news into a good news to obtain a large number of users. In addition, Ruixing Coffee had a certain control over the production control at that time, which also proved that it has the innovative ability to develop new online celebrity products. In addition to coffee, it also expanded the category of high gross profit products such as desserts and bread that meet the consumption upgrade, and it has the ability to retain customers, rather than a wave of flow.

From Mr. Buffett's investment philosophy, buying this one will make it difficult to sleep well - if a company has a cockroach (financial fraud), there will definitely be many cockroaches in invisible places. However, from my own Internet experience, Ruixing has attracted a lot of fans. Unless there are still some illegal acts, if it is just a temporary financial problem, they are fully capable of digesting it, and have greatly improved the brand reputation of Ruixing Coffee in the hearts of Chinese people. There will be great room for future development.

9. Being delisted by NASDAQ did not cause Luckin Coffee to go bankrupt. Luckin Coffee continued to open stores nationwide and quickly transitioned from losses to profits. Subsequently, it conducted over-the-counter trading in the US OTC market, and its stock price returned to the range of $20 to $30.

10. The reason for this asymmetric interpretation of information may be interpreted by some as "poverty limiting my imagination". In fact, what limits imagination is not poverty, but the cognitive cage formed by everyone's past experiences, and poverty is just one of them. For example, in the face of the advent of the Internet era, many bosses in traditional industries are overwhelmed because they stick to their past perceptions; After the advent of mobile Internet, some of those who had become popular in the Internet era also lost their direction in the rapidly changing environment.

Even Alibaba, the leader of e-commerce industry, is no exception. Alipay was paid by WeChat to "sneak attack Pearl Harbor" with a red envelope of the Spring Festival Gala. In front of the social e-commerce and content e-commerce, it has become a traditional e-commerce. Even Tencent, which has obtained the largest "ship ticket" of the mobile Internet, is walking on thin ice when facing the challenge of ByteDance to incubate today's headlines, Tiktok and TikTok based on the distribution of recommended content.

Fortunately, everyone has the ability to grow on their own. Even if they are temporarily in trouble, as long as their cognition changes, they can view the world from a new perspective and gain new life. From 2014 to 2024, when traditional supermarkets were hit by Internet e-commerce, Wal Mart (with a market value of US $515.9 billion) and Costco (with a market value of US $351.7 billion), the American supermarkets with a history of decades, still maintained a rapid growth. Wal Mart's stock price increased by 2 to 3 times, and Costco's stock price increased by 7 to 8 times (not less than Apple Tencent in the same period). Their growth ability was no less than those popular Crispy fried chicken on the Internet. Meanwhile, Alibaba's stock price remains unchanged from ten years ago, which has also pitted Buffett's partner Munger.

To overcome the dilemma of asymmetric information interpretation, the first step is to abandon the mindset that "poverty limits my imagination". The best way is to regularly summarize: share what you have learned and understood, and not be afraid of being criticized for making mistakes. Sharing can put pressure on oneself to reflect; On the other hand, one can recognize cognitive biases in their own areas through external feedback, thereby gaining opportunities for rapid correction. As for some noisy arguments, just blacken them out and don't waste time arguing. Sharing can help you expand your circle, gain different perspectives on problems, and improve your cognitive abilities.

13. The annual shareholders' meeting held by Buffett is a grand feast of sharing and reflection. For the value investment concept like Buffett, even if the past investment has a huge return in the long run, most of the time, it is also faced with the doubts of shareholders: "Why not invest in Internet technology stocks", "Apple's revenue has slowed down in the past two years, is it necessary to reduce the position of some Apple stocks", and so on.

14. Buffett also publicly admitted that he missed Google. His decision not to invest in those growing Internet technology stocks was based on his value investment philosophy, but he admitted that he missed Google because he knew that many enterprises he had invested in, including his own insurance companies, were continuously increasing their advertising on Google, and their customer acquisition costs were far lower than traditional advertising channels. He can use these data to interpret that Google is in line with his value investment philosophy of buying and sleeping for ten years, but he missed it because of his inherent awareness of the high risk of Internet technology stocks.

For Buffett, investing carries risks, but whether it's stopping losses in a timely manner or changing investment targets, candidly admitting your mistakes and taking timely action is the best risk mitigation measure.

Many people cannot learn from Buffett's value investing because they are unwilling to admit that they will make mistakes. When making profits, they boast loudly, and when making losses, they are unwilling to admit to summarizing and stopping losses in a timely manner. Our upbringing environment always encourages us to do the right thing (repeating problems, memorizing standard answers, and getting high scores), criticizing what we did wrong, but rarely encourages us to try and then praises our ability to learn from our mistakes. This growth environment is a very important reason why we are unwilling to face our mistakes directly: as long as I don't admit my mistakes, I won't be punished.

17. To put it further, people can only obtain happiness within their own cognition. Often, we change our cognition and learn new solutions from our mistakes. Happiness is around us, as the saying goes, "When mountains and rivers are poor, there is no way to doubt; when willows and flowers are dark, there is another village.".

epilogue

The first article on information asymmetry discusses the asymmetry of information acquisition; The second article discusses the information asymmetry caused by information interpretation. Is it possible to learn the value investment secret of Mr. Buffett and successfully climb back to the peak of life by doing these two things well? Sorry, it shouldn't be enough. This is the third article I'm going to talk about - asymmetric information control.

This article is from the WeChat official account: Riding Xizang (ID: gobybike), written by taoluo (former technical director of WeChat public platform, now freelance, living in Dali)

This content is the author's independent viewpoint and does not represent the Tiger Smell position. Reproduction is not allowed without permission. For authorization matters, please contact us hezuo@huxiu.com

If you have any objections or complaints about this manuscript, please contact us tougao@huxiu.com

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