Tian: Mastering operational and asset heaviness creates powerful long-term economic moats.
Mike Tian · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · Sep 6, 2021 · at 29:17
Mike Tian of WCM Investment Management analyzes why operationally complex and asset-heavy internet businesses build stronger competitive moats.
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“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.”
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More from Mike Tian
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.”
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.”
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…”
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.”
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.”
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.”