Lin Yuan: Gold has no value, and even a 50% pullback won't lead to positioning. It is not surprising that China Meheco's total market value will surpass that of the United States in the next 20 years

The annual Berkshire Hathaway shareholders meeting is about to be held. On April 24th, Lin Yuan, Chairman of Lin Yuan Investment, shared his views on Buffett's investments and his perspectives on markets such as gold and pharmaceuticals during the live broadcast program "Investment Salon" co-created by Panoramic Network, Tencent Self-Selected Stocks, and Pao Finance.

The investment notebook representative summarized the key points as follows:

1. I believe that within 20 years, catching up to the United States, or even surpassing it, is not surprising, considering the total market value of the pharmaceutical industry.

2. It doesn't mean that we are always fully invested; we still have some cash on hand, and our cash reserves... will not exceed 5%. Always keeping some "bullets" is crucial for when the time comes.

3. I have not positioned myself (in gold); I believe it has no value. Even if it corrects by half, I still wouldn't buy it; I won't pay attention to it.

4. ...In the current economic environment, everything is in excess, and I believe these are good investment targets...

The dividend yield may be 6% - 7%, and the corresponding PE may be three or four times. I tell the people around us, you can see that you can break even in three to four years.

1. We believe that the RMB interest rates will be in a long-term downward trend, and the probability of long-term depreciation of the RMB is low.

The following are the highlights compiled by the investment notebook representative (WeChat ID: touzizuoyeben), shared with everyone:

Why Buffett Holds a Record Amount of Cash

Host: During this round of the U.S. stock market rally, Buffett has been increasing the total amount of cash, even accelerating to over 300 billion in 2024. The cash asset ratio has reached 22%, the highest level since 1995, reflecting a high defensive posture against the overvaluation of U.S. stocks.

When everyone is questioning whether Buffett is going to miss the tech wave again, the instability brought by Trump's administration has led to significant fluctuations in the U.S. stock market. The "seven sisters" of the U.S. stock market have also given back some gains, and the value of the title "Oracle of Omaha" has risen once again.

Let me ask Mr. Lin, ideally, everyone should buy the dip and then sell at the peak, but in actual operations, when the market is rising sharply, when should we increase our positions to chase, and when should we reduce our positions to exit? What are your thoughts?

Lin Yuan: In fact, it is very difficult in actual operations; it ultimately comes down to human nature. When the market is rising, everyone feels that what they hold is great and is unwilling to sell.

The U.S. market has been in a long-term bull market since 2008. So what exactly is high and what is low in the current U.S. stock market bull run? I believe no one can say for sure.

The host just mentioned that Buffett's cash has reached its highest level since 1995, at 22%. I speculate that he may be considering cash reserves based on the extent or duration of the bull market. He may have his own assessments of when things are high and when they are low, but we are not clear on the specifics

Lin Yuan: Basically Fully Invested, Cash Reserves Not Exceeding 5%

Host: Mr. Lin, do you feel a lot of pressure when you sometimes need to reduce your holdings? Will you be questioned by investors for not keeping up with the market's gains?

Lin Yuan: My operating method is actually quite different from what was just mentioned about Buffett. We always think that even if the price goes up, I won't sell or reduce my holdings. For example, reducing some high-priced stocks to convert some cash, this kind of operation has rarely occurred in my life. So essentially, there is still a difference.

Host: Mr. Lin is a long-term investor, so if the fundamentals change or valuations are too high, do you still not reduce your holdings?

Lin Yuan: If the fundamentals change, there is a possibility of reducing holdings. For example, if an industry declines, if a major industry becomes a sunset industry or lacks market prospects, it may be sold. But apart from that, we basically do not pay attention to the highs and lows of stocks.

Host: Mr. Lin, you are "always fully invested, always with tears of joy."

Lin Yuan: It’s not necessarily always fully invested; I still have some cash on hand, and our cash reserves... will not exceed 5%. We always keep some "bullets," and at critical moments, we still need to step up.

Why Buffett Significantly Reduced His Holdings in U.S. Stocks Like Apple in 2024, Lin Yuan: Considering Risks

Host: Back to the main topic, today’s theme is related to Buffett. Looking back, Buffett's reduction in holdings seems quite correct, and currently, he holds a massive amount of cash, providing very sufficient liquidity for future purchases of quality assets. So, Mr. Lin, what signals do you think Buffett saw that led him to decide to reduce his holdings? What’s your view?

Lin Yuan: I don’t know. I just said that the U.S. stock market has seen astonishing gains over the past decade, starting from about 6,000 points after the financial crisis, and rising to over 40,000 points now. Such a large cumulative increase may indicate risk. Is he considering this aspect?

Host: Do you think it’s a risk issue?

Lin Yuan: Yes, he must be considering it from a risk perspective. However, I’m not clear on why he specifically decided to reduce his holdings, or why the stocks he holds have seen huge gains while the fundamentals have not changed.

Host: We know he sold a large amount of Apple stock.

Lin Yuan: This situation is actually quite common in the U.S. stock market.

Host: You think this is normal.

Lin Yuan: Yes, valuation is not just about looking at PE or return rates. Whether the valuation is high or not, a large cumulative increase itself is also a risk.

China Meheco's Total Market Value Expected to Surpass the U.S. in the Next 20 Years is Not Surprising

Host: What do you think about Chinese pharmaceutical companies?

Lin Yuan: Their potential is enormous. Based on our population base and competitiveness, I believe Chinese pharmaceutical companies will not lose to the U.S. But currently, we are far behind the U.S., which is definitely not right.

Host: How long do you expect it will take for us to catch up or even surpass? Can you give us a time frame to look forward to?

Lin Yuan: I believe that within 20 years, catching up to the U.S., or even surpassing the U.S., is not surprising in terms of the total market value of the pharmaceutical industry.

Host: What catalysts are needed to ignite this situation? Lin Yuan: First of all, market trends are key. For example, we need a bull market environment, because currently China is not in a bull market, while the U.S. is. The U.S. stock market is overall in a bubble trend upwards. China, at least for now, does not have a clear upward signal.

The second factor is population aging. We see that U.S. pharmaceutical companies are targeting the global market. China is just beginning to go global. Our country has 1.4 billion people, and in 20 years, the audience for pharmaceutical consumption will likely increase tenfold. Therefore, we believe that Chinese pharmaceutical companies will usher in development, mainly due to these two factors.

Gold has no value, even if it corrects by half, I won't invest

Host: Regarding gold, we have previously mentioned that it would be above $3,000 per ounce, and it has recently reached $3,500/ounce. What does Lin think about its future upside potential? Is a correction coming? Can investors still chase it now? Is it overheated?

Lin Yuan: Gold has been in a major bull market for the past few years; it is also a trend upward. It is hard to say when the peak will be. But from a value perspective, gold has no value.

Host: Because it has no interest?

Lin Yuan: Yes, it has no value. So this thing is completely driven by trend; it is hard to determine whether its price is high or low.

In fact, for the past 100 years, gold has spent more than 60% of the time declining. So from a value perspective, it has no value. It is difficult to judge the trend; when it is high, it can go higher.

Host: I remember when I interviewed you last October, it was still below $3,000 per ounce. Now it is in this state; have you been paying attention? Have you invested? Can you share a bit?

Lin Yuan: I have not invested; I just believe it has no value.

Host: You think it has no value, so can you give investors some advice? Is now a buying opportunity, or should we wait for it to correct by a certain number of points before continuing? Do you have that judgment?

Lin Yuan: Even if it corrects by half, I still wouldn't buy; I won't pay attention to it.

Host: You only earn within your cognitive range.

Lin Yuan: Yes, why would I invest in something that has no value?

Host: Xu Meng, do you agree with Lin's viewpoint?

Xu Meng: Personally, I think there are some differences. Gold has performed well in the past few years, possibly due to certain logic. For example, when the dollar is unstable and global uncertainty is high, allocating gold makes sense.

Additionally, in the context of inflation, this is also a reason for allocation. In recent years, many central banks have also started buying gold in large quantities, which may stem from the logic of allocation environments. However, from a trend perspective, gold should still be in an upward trend.

I would like to mention that from a statistical perspective, we have found that the recent heat or congestion of gold is relatively high compared to historical levels. So whether there will be a short-term correction, I think this indicator can slightly hint at risks at the appropriate time. Of course, in the long term, I can't predict either, but in the short term, based on past trends, it is a major bull market. In the short term, the heat may be high; whether there will be a short-term correction is uncertain in the long term Host: It's hard to predict in the long term. Alright, Mr. Lin is smiling, still wanting more. Does Mr. Lin's smile have any deeper meaning?

Lin Yuan: No, I just think that everyone has become a trend investor, buying when prices go up and not buying when they go down. Now everyone in the market is buying it (gold), including the country. What I say today might not be appropriate; there will always be a day when it goes wrong. In fact, you realize that this kind of thing will eventually go wrong one day.

Buffett increases his stake in Japan's five major trading companies, and I also bought Japanese stocks

Host: Let's look back at Buffett. He has been reducing his overall holdings, but he continues to increase his investment in Japan. Japan has successfully transitioned from deflation to inflation, driving economic recovery. So Buffett is still issuing bonds in Japan, borrowing yen to buy Japanese bonds. What is the thinking behind this behavior? Is he borrowing money to invest in stocks? Mr. Lin, what do you think?

Lin Yuan: The deposit interest rates in Japan are basically nonexistent among developed countries, which is also a special case. Japan shows that it has truly earned money from all over the world. Its industries and enterprises have made money globally, so it now has almost no debt. However, Japan's standard of living has reached one of the highest levels in the world, and domestic prices are also very high. There's no way around it; that's just the situation in Japan.

So when Buffett borrows money, he must have his reasons. Because the money in Japan is real and has no interest.

The five major trading companies hold the lifeblood of the Japanese people; these companies cover areas such as energy, machinery manufacturing, pharmaceuticals, clothing, and food and beverages, which are basically within the business scope of the five major trading companies. These trading companies are large conglomerates. Therefore, I believe that these companies listed in Japan have relatively stable profits. So Buffett borrowing money to invest in them, the dividends might even be higher than these. At least for now, it's the right move.

If we calculate the probability of Japan experiencing high interest rates and high deposit interest rates, the probability is low.

Japan's situation is quite special. Why? In European and American countries or developed countries, you see that those interest rates are very high. The interest rates for the dollar and pound are high, but only Japan is still maintaining low rates.

There is too much money, and the population is aging, so there isn't much need for investment. There shouldn't be many new enterprises in Japan, and people's desire to invest is low, so the five major trading companies have grasped the economic fate of Japan, making their returns relatively stable. From a competitive perspective, these investments should have monopolistic characteristics. Therefore, Buffett's investment in stable returns should be worthwhile.

The five major trading companies have operated very stably over the years, and there are not many competitors in Japan, so their income is stable. Buffett may have focused on this point, which is why he borrowed money to do this.

Host: But previously, the yen depreciated, and with low interest rates, now the yen has appreciated. Japan is also discussing raising interest rates, so recently Berkshire is going to issue bonds in Japan again, and it is very likely to continue increasing its holdings in Japanese stocks. Mr. Lin, what do you think?

Lin Yuan: I haven't noticed the appreciation of the yen. Even if the yen appreciates again, it is still at a historically low level. For example, the current exchange rate of the dollar to the yen is about 140, whereas a long time ago, the yen was only worth a few dozen to the dollar. So how much has the yen depreciated? It has depreciated by about 80% - 90%. Therefore, even if it appreciates by a few percent, it is still relatively cheap compared to the dollar Host: So Buffett continues to increase his holdings in Japanese stocks, are you surprised?

Lin Yuan: No, the yen is very cheap right now, relatively speaking to the dollar. Many investors went to Japan to buy things at the beginning of the year, and it was actually still very cheap, equivalent to the dollar being very cheap.

Host: Do you have any related layouts?

Lin Yuan: We have been paying attention to this area and have made some layouts.

Host: You didn't disclose this before.

Lin Yuan: Yes, I didn't disclose it before.

The long-term trend of RMB interest rates is downward, and the probability of long-term depreciation of the RMB is low

Host: We have been discussing the downward pressure on the domestic economy and the downward pressure on prices. What is the implication of Japan's re-inflation for our domestic economy? Mr. Lin, do you think there are areas we can learn from or be inspired by?

Lin Yuan: Japan actually does not have obvious inflation. Prices in Japan have been relatively stable.

Because domestically, there are indeed too many products being produced now. Japan may have had a similar situation many years ago, for example, excessive real estate production, and for decades Japan has been trying to prevent housing prices from falling. China is in a similar situation now.

The only similarity we have with Japan is that China's savings rate is very high. So from this perspective, in terms of probability events, we believe that RMB interest rates will be in a long-term downward trend, and the probability of long-term depreciation of the RMB is low. This is my insight.

Similar to Japan's five major trading companies: We should also invest in these window enterprises

Host: Should we look for some assets in the A-share market that are similar to the five major trading companies? Mr. Lin, what do you think?

Lin Yuan: If we are making an allocation, assets similar to the five major trading companies should be included. They can provide you with stable cash flow.

Secondly, it relates to the overall livelihood issues. I think these trading companies are somewhat like the enterprises of Li Ka-shing, involved in various industries, and even doing better.

There are also some similar companies in the A-share market, although they are not particularly large, but their businesses are also very comprehensive. For example, some external window enterprises in cities like Beijing, Shanghai, and Tianjin are also comprehensive, and they have invested in many fields, such as energy, water supply, and electricity supply, and their valuations are also very cheap now. We think there are similar things.

These are comprehensive companies. If you were to split the assets of such enterprises, they would be very large numbers. Although their shareholding is not operational, they are all equity stakes, and the shareholding ratio is quite large. But when put together, it becomes a joke; basically, we looked at it, and these window enterprises are now being sold at a discount of 80%, or even lower. The net asset value is being sold at 20% of its value, or even at 10% (something worth 1 yuan is sold for 20 cents).

Moreover, we found that these assets are very cheap and are all high-quality assets, similar to what the five major trading companies operate, and even of better quality.

In the current economic environment, everything is in excess, and this gives us an insight that it is feasible. The dividend yield may be 6% - 7%, and the corresponding PE may be three times or four times. I tell the people around us, go take a look, you can break even in three to four years, and there is no risk So when the host asked me why I was laughing just now, it might be because seven or eight or ten years ago, when everyone talked about real estate, I was also laughing when real estate prices were rising.

I have an impression in my mind that they are all trend investors. They always feel that buying gold assets is safer and can still rise, but if there are unexpected events, the outcome is uncertain. I think to myself that others won't listen, so I just laugh. I am just laughing because I know clearly in my heart.

But cheap things get cheaper as they fall. In the current economic environment, with overproduction, I think these are very good investment targets, no problem, I don't believe the sky will fall.

What problems could there be with water, electricity, and gas supply? First of all, their businesses are not in a fiercely competitive environment. For ports and docks, if they are expensive, then don't invest. I looked for two indicators: one is PE, and the second is the dividend yield and payout ratio, high dividends. This is also available. Although it doesn't rise, if you buy it and it doesn't rise, there will always be a day when everyone recognizes its value.

Host: Okay, thank you, Mr. Lin. This gives us a great hint that you mainly focus on areas like water supply, electricity supply, and ports and docks.

Lin Yuan: I am not focusing on this; let me clarify, I am just saying these are the five major trading companies or Buffett's investments you mentioned.

The businesses of these window companies are very simple; I don't know about the rise and fall of their stock prices, and no one is paying attention to these now. They hardly trade a few shares a day, and no one cares. But from our past experience, investing in these things is at least neutral. Although it won't make you rich, as a portfolio, we think it is acceptable.

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The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk