Conversion Strategy for the 'Focus Only on Big Deals' Philosophy in Value Investing

The ‘Focus Only on Big Deals’ investment philosophy essentially reflects three core principles of value investing:

. This philosophy requires investors to act like Didi drivers who only accept long-distance big orders—abandoning short-term ‘small opportunities’ and focusing on ‘big opportunities’ that can provide better risk-adjusted returns.

• ROE (Return on Equity)
  ：Minimum value for three consecutive years >15%[1]
• Operating Profit Margin
  ：Minimum value for past three years >15%[1]
• Asset-Liability Ratio
  ：<50%[1]
• Operating Cash Flow
  ：Long-term higher than operating profit to ensure cash flow quality[2]

According to research from professional institutions, a comprehensive score can be constructed through three dimensions:

• Economic moat score: 2 points if both ROE and operating profit margin meet standards, or 1 point if only one meets standards
• Financial health score: Weighted score of asset-liability ratio, ROE, and operating profit margin
• Management quality score: Changes in tradable shares, growth in dividend payout ratio[1]

• Brand Barrier
  : Product becomes a lifestyle or cultural symbol, transcending price competition
• Cost Advantage
  : Scale effect combined with operational efficiency, forming a structural cost advantage
• Network Effect
  : Platform business model where more users increase value
• Switching Cost
  : High cost for customers to switch suppliers

Buffett emphasized that the key to investing is ‘determining what the company’s competitive advantage is, how strong it is relative to peers in the industry, and most importantly, how long this competitive advantage can last’[1].

According to Buffett’s 1977 analysis framework:

• At 1x PB, a 12% ROE yields a 12% pre-tax return
• At 0.8x PB, the same ROE yields a 13.5% return
• At 1.5x PB, the return drops to 10%[1]

• Prioritize targets with PE and PB in historical or industry low ranges
• Avoid valuation bubble risks, ensure sufficient margin of safety[1]

Buffett’s Q4 2024 holdings embody the essence of concentrated investing:

• The top 5 holdings (Apple, American Express, Bank of America, Coca-Cola, Chevron) account for over 70%
• Total holdings are 38 stocks, but the core is concentrated in a few high-quality targets[3]

• Consumption dual track: Daily consumer goods (stable cash flow) + non-daily consumption (consumption upgrade dividends)
• Energy strategic hedge: Integrated oil and gas leaders + shale oil leaders
• Financial ecosystem closed loop: Payment-rating-insurance business chain[3]

• In Q2 2023, the average holding time of the top 20 weighted stocks in Buffett’s portfolio reached 6.35 years
• A significant increase from 4.35 years in 2013 and 0.83 years in 2001[4]

Even during market volatility, the changes in Buffett’s Q4 2024 portfolio accounted for only 8.86% of total holdings, less than 5% of the portfolio’s total value by amount, reflecting extremely strong patience and resolve[4].

• Increase allocation when the market is panicking or high-quality enterprises are wrongly sold off
• Contrarian layout of traditional but strategically valuable industries
• Such as Buffett’s contrarian layout in the energy sector[3][4]

• Maintain sufficient cash reserves, wait for ‘big deal’ opportunities
• Avoid lowering investment standards for capital utilization
• Strictly follow the ‘better to lack than to have shoddy’ investment discipline

• A1 Industry space (±10%): Future growth potential
• A2 Industry concentration: Leading company’s market share harvesting ability
• A3 Management/category: Management level and category expansion ability
• B1 Cyclicality: Cyclical consideration with a maximum 30% discount
• B2 Policy: Evaluation of policy risks
• B3 Other moats: Competitive advantages except finance
• B4 Operating cash flow: Verification of cash creation ability[2]

Buffett’s portfolio covers three cross-cycle sectors: consumption, finance, and energy. It reduces portfolio volatility through industry allocation, and the moat effect of leading enterprises is significant[3].

One should neither ignore the valuation margin of safety for quality nor sacrifice enterprise quality for valuation; it is necessary to find the optimal balance between the two.

From Buffett’s Q4 2024 holdings, we can see the specific practice of the ‘Focus Only on Big Deals’ philosophy:

• Apple (28.12%): Dual attributes of technology + consumption
• American Express: Core of financial payment ecosystem
• Coca-Cola: Typical representative of brand moat
• Chevron: Traditional energy strategic hedge[3]

• Reduce holdings of bank stocks, increase holdings in energy, telecommunications, consumption, and leisure industries
• Reflects active management of macro risks
• But the core principle remains unchanged: Only invest in high-quality enterprises with deep moats[4]

When converting the ‘Focus Only on Big Deals’ value investing philosophy into a specific investment strategy, it is necessary to establish strict stock selection criteria, concentrated position strategies, long-term holding discipline, and sound risk control. The core of this strategy is quality over quantity, time over timing, and patience over cleverness. Through specific criteria such as financial quality screening, moat evaluation, and valuation margin of safety control, combined with strategies like concentrated investment, long-term holding, and opportunity waiting, investors can achieve better risk-adjusted returns in complex market environments, which is exactly the fundamental goal of the ‘Focus Only on Big Deals’ philosophy.

[1] Jinling API Data
[2] “What is the Core of Investing? Grasp Certainty” - Futu NiuNiu
[3] “Latest Holdings of Top 10 Investors Like Buffett, Soros, Duan Yongping, Dan Bin Released!” - Simuwang
[4] “Global Financial Observation | Buffett’s Latest Holding Adjustments: Pause Selling Apple, Reduce Holdings…” - 21st Century Economic Report