A Strategic Framework to Navigate Market Fog

1. Clarify Macro Background and Sentiment Differentiation
   
   In the high volatility and valuation divergence environment of the second half of 2025, top institutions tend to look for “discarded high-quality assets” during market fear and irrational depreciation periods and gradually build positions at the right time (market observation from web search [1]). Therefore, first, we need to understand the current macro cycle, interest rate path, and liquidity status, identify segments where the overall market’s “trend-sentiment-valuation” is disconnected, laying the groundwork for finding companies with endogenous growth capabilities.

2. Screen High-Quality Business Models with ‘High Value + Strong Dependency + Large Growth’
   • High Value
     : Core assets have deep moats, scarce resources, or long-term supply-demand imbalances (e.g., patents, biotech pipelines, AI capability platforms). Evaluation criteria include: ROIC consistently higher than cost of capital, compound growth of free cash flow (FCF), and high-quality gross margins and long-term contract guarantees.
   • Strong Dependency
     : Customer dependence on products/services comes from high switching costs, regulatory thresholds, or network effects. Metrics can refer to Net Promoter Score (NPS), customer retention rate, and the ratio of Lifetime Value (LTV) to Customer Acquisition Cost (CAC).
   • Large Growth
     : Comes from industry expansion, penetration rate increase, or new products/markets. Focus on multi-period annual revenue growth, scalability, and the path outlined by management, especially recurring revenue ratio and industry ceiling.

3. Take ‘Endogenous Value’ as the Core Investment Axis
   
   Pricing models do not rely on short-term fluctuations but focus on long-term value creation:
   • Return to Fundamental Growth
     : Through long-term Compound Annual Growth Rate (CAGR) and unit economics decomposition, verify whether growth is driven by endogenous operations (e.g., R&D conversion, capacity expansion) rather than financial leverage or one-time events.
   • Capital Allocation Capability
     : Whether management is good at repurchasing/expanding when valuations are low, or restraining spending when valuations are high. Question the sustainability of “growth stacking”, ensuring endogenous returns can offset the cost of capital.
   • Net Assets and Value Reserves
     : Check if the balance sheet provides a certain margin of safety (cash coverage, low leverage) to ensure no capital restructuring or financing pressure during storms.

4. Establish Multi-Cycle Verification Mechanism
   
   Combine qualitative and quantitative indicators:
   • Qualitative
     : Evaluate whether the business has “strong dependency” elements (e.g., proprietary technology, regulatory licenses, distribution networks) and can maintain pricing power during valuation downturns.
   • Quantitative
     : Use rolling ROIC, revenue contribution rate, free cash flow conversion rate, gross margin improvement, etc., to judge whether the business’s “endogenous growth” is sustained.
   • Pricing Modeling
     : Set “conservative-benchmark-optimistic” scenarios in DCF/relative valuation, highlight the growth part of long-term value, especially prioritize “high-quality growth” over “high growth but low quality” during volatile periods.

5. Portfolio Execution Techniques in Volatile Phases
   • Shift from High Valuation/Sentiment Concentrated Areas
     (e.g., Hong Kong stock innovative drugs) to tracks with more certainty in fundamentals and valuations (e.g., US stock biotech), reducing volatility risk by lowering portfolio beta and increasing endogenous growth certainty.
   • Use ‘Core-Satellite’
     : Core positions lock in long-term endogenous growth businesses, while satellite positions flexibly capture volatility and thematic opportunities, thus balancing returns and volatility control.
   • Dynamic Position Adjustment and Re-evaluation
     : Set clear “value revaluation trigger conditions” (e.g., valuation drops to a certain multiple, continuous decline in endogenous growth rate) and quickly adjust positions based on actual data.

6. Mindset and Actions from a Long-Term Perspective
   
   Evaluate the evolution of endogenous value over multiple years, avoiding misinterpreting fundamentals due to short-term “feeling of uncertainty”. Just as Qingqiao Sunshine Fund reflected in its position changes from Q2 to Q3 2025: identify and increase positions in companies with “high value + strong dependency + large growth” during volatility, and price their excess returns from endogenous growth with a long-term perspective.

Synthesize the above logic, use the “value + dependency + growth” framework to identify endogenous high-quality businesses, and evaluate their long-term value returns with “multi-cycle + scenario-based + capital allocation”. When market fog deepens, adhering to the judgment of the internal competitiveness and growth drivers of the business is the way to navigate through the fog in volatility.

[1] Forbes – “How Top Investors Find Opportunities In Times Of Uncertainty” (https://www.forbes.com/sites/courtneyconnley-hampton/2025/11/21/how-top-investors-find-opportunities-in-times-of-uncertainty/)
[2] Investopedia – “Master Growth Investing: Profit From High-Growth Stocks … What Bubble? Asset Managers in Risk-On Mode Stick With Stocks” (https://www.investopedia.com/terms/g/growthinvesting.asp)