Opinion
Tian: Alibaba's asset-light business model is an "original sin."
“That's exactly the way that Alibaba did the business, and I actually, I think it's potentially an original sin. It's the way that eBay thought, and it didn't really work out that well for them versus, let's say, an Amazon.”
Opinion
Tian: Visa's economic moat trajectory is narrowing and growth is stalling.
“My personal opinion, which doesn't necessarily reflect the views of WCM as it were, is that the trajectory is narrowing here. The story is getting tougher to believe in today than it was, say, three, four years ago.”
Insight
Tian: Efficient scale is the weakest moat because competitors act irrationally.
“And number five, which is really the least important mill source, I think, is efficient scale. And that's the idea that You have a very niche market that perhaps can only support one player. And if somebody else were to get into it, you will destroy the econom…”
Opinion
Tian: Rapid brand turnover prevents strong consumer goods companies in China.
“There's very few good FMCG or fast-moving consumer good companies in China. You see the brand turnover, at least outside of the prestige or luxury space, is very fast.”
Insight
Tian: Mastering operational and asset heaviness creates powerful long-term economic moats.
“Companies can be heavy on asset front, or they can be heavy on operational front, and ideally both. If you're going to do both really well, that could be a powerful operational and strategic competitive advantage for you longer term.”
Disclosure
Tian: WCM has long been underweight in high-quality Chinese internet companies.
“It's interesting, because we've been underweight China internet for a long time, which actually is surprising for me to say that, just because you think we're high-quality investors, and those are, most people will consider them high-quality businesses.”
Disclosure
WCM skips financial modeling to rely almost entirely on qualitative analysis.
“Almost everything we do is qualitative. We're not really big on modeling or anything like that, and even modeling out market shares and whatnot, this is sort of like a finger in the air type of thing. We don't really put a whole lot of stock in that.”
Assertion Supported
Tian: Highly profitable Alibaba is losing market share to competitors.
“Alibaba is a classic, or we just want to be Like the platform in the middle make huge margins, and they are the most profitable e-commerce company arguably in the world, but they're losing market share versus all of these other competitors that are out there.”
Disclosure
Tian: WCM prefers expanding competitive advantages over highly profitable incumbents.
“I would much rather take the more Complex heavier one that's actually growing in terms of competitive advantage and relevance, even if it has much lower profitability today.”
Insight
Tian: Centralized power in Chinese companies gives first-generation founders immense influence.
“And also Chinese companies in many cases tend to be much more centralized in terms of power. So you do have to take into consideration a lot more, I think, that founders Their proclivities, their strengths and weaknesses, and so on when you make a bit of a cul…”
Insight
Tian: Reaching 100 million users is far easier in China, accelerating disruption.
“Getting to a hundred million users or a certain amount of critical scale is really, it's not, I wouldn't say really easy, but it's certainly far easier in China versus anywhere else in the world, and that drives disruption.”
Insight
Tian: Highly fungible internet traffic in China drives rapid platform disruption.
“The traffic in China, for various reasons, is more fungible than it is in the rest of the world, and it can be, so platforms, very powerful traffic drivers, can sometimes direct that traffic in unexpected places to drive competition and disruption.”
Disclosure
WCM invested in Wolwo Pharma, a high-margin Chinese dust mite monopoly.
“We're investors in a company that, believe it or not, makes dust mites. So if you have an allergy, what do you do is that, you know, if you want to, you can take a drop of basically pulverized dust mites on your tongue, and over time, your immune system will g…”
Insight
Tian: Commoditization is the primary risk for almost all investments in China.
“So the risk we're always fighting against for almost all of our investments is commoditization. When you have a robotics company or whatever it is, there's like literally hundreds of robotics companies in China chasing that. If you're going to invest in semico…”
Opinion
Tian: Assessing corporate culture is exceptionally critical for investing in China.
“So making that culture call correctly actually is pretty important in China, arguably even more important than elsewhere in the world, especially those traits of adaptability.”
Insight
Tian: Detecting corporate culture breakdown in real time is incredibly difficult.
“How do you recognize in real time when a culture is perhaps breaking down a bit, and that's actually causing a problem longer term for the business? That is actually an even harder problem than recognizing a great culture in the first place, because when you'r…”
Disclosure
WCM used developed-market patterns to invest early in Chinese drug manufacturers.
“For example, we were super early into the contract resource organizations or contract drug manufacturing organizations, as far as like Wuxi AppTech, Wuxi Bio, names like that, because we've been investing in these companies in the developed markets for years a…”
Disclosure
Tian: Hundsun Technologies holds a near-monopoly on Chinese financial software.
“We're investors in a company called Hunson Technologies, and what they are is a near monopoly maker of critical financial software for brokerages, banks, the stock exchange, and things of that nature. Obviously, extremely sticky business with 99.9 renewal rate…”
Assertion Supported
Tian: Most natural resource companies he covered at Morningstar went bankrupt.
“In fact, the majority of companies I cover at that point are bankrupt today.”
