Editor’s Note: This article comes from WeChat WeChat official account Gelonghui CLUB, written by Yong Rong Asset Huang Yong, reproduced by Entrepreneurial State with authorization.
Author’s introduction: Mr. Huang Yong founded Yongrong Asset Management Co., Ltd. in 2011 as the company’s chief investment officer.
I am a very ordinary investor, managing a small fund, with average results. I haven’t done a lot of business in China, but I have seen many business models and national patterns with my unconstrained learning and curiosity. I am extremely optimistic and optimistic about the country where I grew up and lived, as follows.
A company that has achieved great success in the commercial field is called Amazon. Bezos, the founder of this company, said in a letter to shareholders in 1997 that the most important thing is about the long term. The biggest feature of this company is continuous investment, no profit, and all the operating cash flow obtained is invested in the future he believes, so after 22 years of persistence, Amazon has become the world’s largest company with market value.
Why mention Amazon? Because in the business field, Amazon is the most remarkable enterprise in my opinion. In 2019, I insisted on reading Bezos’ letter to shareholders for 50 times. The compound interest generated by long-term doctrine has great magic, but the super-large organization that insists on long-term doctrine most in the world is the China Municipal Government. When I was in junior high school, the political textbook talked about the five-year plan. So far, China has issued 13 five-year plans.
In the first few years of my investment, my analysts and I had some differences about the sustainability of China’s economic growth. Analysts believe that the proportion of infrastructure investment in GDP is too large and the efficiency is too low, and it seems that the overall economic growth depends on the continuous construction of roads, bridges and highways every year. In 2008, during the global financial crisis, China announced 4 trillion yuan of infrastructure projects, and China bought the largest amount of iron ore in the world, completely ignoring the so-called cycle of taking a break of one or two years before investing, which seems totally out of line with the law. A few years before I first came to work in Shenzhen, I didn’t go back to my hometown in Hunan, and the traffic was not very convenient. Once I borrowed a friend’s car, and the bumpy road scratched the chassis. After about three years, I drove back again and the road was smooth. Then, the high-speed rail was opened, and I found that the experience of returning to Hunan was better. After more than three hours in Changsha, the number of times I went back to Hunan naturally increased.
Huge positive externalities have emerged. With the seemingly inefficient investment return and crazy investment of the government, the circulation of commerce, people, logistics and information has been ignited. Do you know what life on earth comes from? It is the flow of ocean currents and the constant innovation attempts of various combinations that gave birth to life. In the soil like China, totally different commercial species with higher dimensions have grown. Without the super-efficient and ultra-low-cost infrastructure, it is hard to imagine the rapid rise of companies like Pinduoduo and Meituan.
When I was studying western economics in college, the government’s main indicators of concern for the economy were inflation and unemployment. In recent years, I have been looking at American stocks and found that the most concerned indicator of the government is actually the stock market. The fundamental reason is that the stock market is something that is easy to be concerned by everyone and has a newer frequency. This thing replaces inflation and unemployment to unify everyone’s minds. But this thing is deadly, it can only go up but not down, and once it falls, it is worried about losing the confidence of its supporters.
The United States is basically a political system that serves big capital. Boeing is a representative of a core American company. To what extent is the value of capital kidnapping? In order to save R&D costs, Boeing replaced hardware updates with software systems. As a result, something went wrong and R&D investment was insufficient. In good times, the company used all the cash it earned to buy back its own shares. This is not enough. Out of full confidence in the future, I borrowed more money to buy back to stimulate the stock price, and abruptly turned myself into a company with negative equity. What do you mean, it is an insolvent company. Under normal circumstances, the market is happy to see its success. However, this epidemic superimposed many vulnerabilities, which made this company that was kidnapped by capitalists have an accident, and its stock price fell like the speed of light. Now I can only ask the government for help shamelessly. There are not a few companies that are insolvent to buy back.
Human beings are willing to believe what they see in front of them, but only long-termism can see what they believe in the future. The super-large organization with the most long-termism spirit in the world is the China Municipal Government, which is our greatest luck as Chinese. Investment in infrastructure is the best business model, and China government has been practicing this business model for a long time on a huge scale.
If we regard this epidemic as an examination and test, it first spread in China, and the decision made by the China government showed foresight and super-efficient execution. Exponential growth is a terrible growth model. Its important feature is that it is not obvious in the early stage and is often overlooked. Just like the concept of compound interest in investment, time and exponential growth are the biggest enemies of all unimaginative managers and decision makers.
Facts have proved that so far, managers in all powerful developed countries lack this ability to think, and they appear to be kidnapped by short-sightedness. A country with the earliest outbreak of epidemic finally became the safest country in the world. It is definitely not just a correct decision to close Wuhan, but the super confidence accumulated by the government over the years that permeates the management execution of capillaries and the efficiency of economic and industrial networks. Governing a big country is like cooking small things and freezing for three days. From the perspective of overcoming the epidemic, China is the only "developed" country in the world.
In my opinion, strengthening loop and adjusting loop are the most ideal basic concepts of investment model, and Soros’s reflexivity theory can also be explained by these two basic concepts. To put it simply, it is because of strengthening the fruit and strengthening the cause that the continuous strengthening is called the enhancement loop. For example, the network structure of e-commerce, the number of users and the number of merchants reinforce each other. The most suitable structure of the enhancement loop is the network structure, which is also one of the most powerful structures in my opinion. For example, the panic of this virus, the increase in the number of users of Zoom, the glory of the king, Pinduoduo and so on.
China has probably formed several powerful network structures:
1. Industrial network structure. The communication efficiency between one node and another node depends on the feedback speed between the two nodes. The denser the nodes, the denser the nodes will be. Thanks to China’s reform and opening-up policy and the opportunity to join the WTO, China has made great efforts to improve its economy. The advantage of low cost absorbed the industrial transfer of developed countries around the world, and then slowly evolved from the initial labor cost advantage to the efficiency advantage brought by the network structure itself. We know that the labor cost in China is no longer advantageous today, but if the industrial chain is transferred to other countries, it will lead to the inefficiency of any node, which will lead to the overall inefficiency. This is not determined by the policy, but by the efficiency requirements of the business itself. For example, an innovative enterprise of electronic products, no matter where your global headquarters is, if you don’t have a resident procurement engineer in Shenzhen, you can almost think that you haven’t understood what efficient supply chain management is all about.
2. Information Internet structure. The country that benefits most from the progress of information technology in the world is China. When Amazon rose in the United States, it already had very powerful Wal-Mart and Costco, while Alibaba faced a very backward distribution system. The high popularity of credit cards in the United States makes it less important to improve the experience of marginal innovation in payment, which makes the advanced degree of online payment completely unable to compare with WeChat payment and Alipay in China. By the way, the steam engine revolution has strengthened Britain, but the advantages it has created have made the electrical revolution more thorough in Germany. The first country to be fully online must be China, which has the least obstacles. In this epidemic, people living in cities don’t have to worry about their daily lives. They can use the Meituan group to order food or buy food. Don’t worry about communication, you can feel any changes in the world in your circle of friends and Tik Tok. Working from home can use nails and Tencent meetings. It is completely unnecessary to worry that paying cash will infect the virus. It is estimated that many people have long since lost their bank cards.
3. Super-urban agglomeration built by big urbanization and high-speed rail. People go to cities for a better life. The city itself is a network structure that links more business opportunities, educational resources and medical resources, and has a more efficient division of labor and interaction. The biggest investment opportunity in the process of urbanization with a population of 1.4 billion is to invest in real estate in core cities. Because the holding cost of real estate in China is much lower than that in developed countries, houses instead of stocks have become the core of the people? Assets. High-speed rail connects cities, such as Pearl River Delta, Yangtze River Delta and Beijing-Tianjin-Hebei. The city scale effect and network effect produced by the links in these areas are enough to stimulate countless entrepreneurs to work hard in every subdivision for success, because success in any sense is unimaginable.
Relatively speaking, Hong Kong, Australia and other developed regions are facing the possibility of class solidification and stimulating contradictions because of their insufficient population size advantages and insufficient incentives for innovation. China’s rich list rarely solidifies for more than 10 years. This is because there are enough possibilities for innovators to break through the monopoly of traditional industries, and any business form is challenged by innovators. This is the fundamental reason why a country is full of hope. We should be wary of any form of monopoly that will stifle the future. Network structure is a powerful structure, or a very good strategy, which makes it impossible for competitors to catch up in the same way or by simply copying resources. Today, no country in the world can try to split a single industrial network node in China. Even if this country is the United States, no company can simply provide a chat tool to catch up with WeChat, because our circle of friends is all on the Internet. Today, the process of urbanization in China is vast, and the division of labor is the foundation of human civilization. The superposition of these networks continues to prosper, creating a more powerful ecology.
In the product of Tik Tok, any actions of users will be recorded, such as the duration of stay in each video, the total duration of stay in a certain type of video, whether it is 1 second or 5 seconds, and so on. Tik Tok’s system will choose to send more suitable content according to the user’s behavior, so the user’s behavior and content distribution form a system that can be continuously optimized in experience, thus enhancing the experience of this product.
In this epidemic, I observed two events:
1. Li Wenliang incident. In the early morning of February 7th, I suddenly saw a full screen of friends mourning Li Wenliang. This scene made everyone who felt the same way cry, and I was no exception. Why are so many people who don’t know Li Wenliang thanking this anti-epidemic hero who whistles but is regarded as a rumor monger? Because of his ordinary status, the first kind reminder was warned and admonished by the police, and the people’s emotions were mobilized. Everyone was aggrieved by this ordinary hero. At 13:09 p.m. that day, the State Supervision appointed an investigation team to investigate the relevant issues in Li Wenliang, and the official website of WHO mourned Li Wenliang. Afterwards, the Public Security Bureau informed the Li Wenliang incident to cancel the admonition and apologized to the family.
2. Grateful events. On March 7, a word "gratitude" was widely discussed in the circle of friends. The reason was that the leaders in Wuhan asked the people of Wuhan to express gratitude to the party and the country. In the case that the epidemic situation has not been stabilized and comprehensively improved, it has inspired countless netizens to crusade. The government is the people’s government, and the government and the party should first express gratitude to the families who died for the epidemic and the Wuhan people who made sacrifices to seal the city. Although many posts on the Internet can be forwarded or not, we soon saw the voice of thanks from the government and even the top leaders. Later, in Tik Tok, we saw many expressions of deep gratitude from the local people in Hubei to the rescue team, which caused countless tears.
These two events verify my idea that the government and the people have worked together to build a self-evolving system. In the face of an uncertain event, whether it is Li Wenliang, the police, local leaders or senior leaders, I believe that each of them has good intentions at first, but in the absence of complete information, it depends on luck to make the right decision at the first time. The panic of information and the spread of virus are very harmful, and you will face uncertainty in any direction, but more information feedback can find a better solution in a system. China is lucky and powerful. There are not only guoshi Zhong Nanshan and Li Lanjuan, but also countless retrograde heroes who go to epidemic areas. The government is very good. After finding the correct solution, it acted quickly and implemented it in place, which abruptly pulled countless people back from the disaster. Compared with other countries, it is found that no country in the world can do better than China in the case of Wuhan, which is a miracle created by the unity of the government and the people.
A self-evolving system has strong error correction ability and anti-vulnerability ability. In the face of environmental changes, not the smartest species nor the most powerful species can survive, but the species that can adapt to changes best can survive. At least it can be judged that the system formed by the people and the government of China is not an arrogant system. After the Cultural Revolution, we experienced SARS, and we emerged from the trauma and became stronger. The government shows a very good tolerance and grasp of a stable society, that is, it does not excessively suppress speech, nor does it allow speech that causes panic to spread easily. A stable society is the well-being of all people, and this balance requires the government’s high wisdom.
The future is very uncertain, just as a quarter ago, we couldn’t imagine that we spent this quarter in a way of witnessing history, and the process was still going on in an out-of-control way. I think it is necessary to ask why I have more confidence in China’s way of choosing leaders. If political governance is regarded as a top professional competition, China has been screening the best players for a long time and with great intensity. The best leaders at the municipal level grow up to be provincial leaders, and the best leaders at the provincial level grow up to be national leaders. Every position must be inspected for a long time. This kind of selection is like choosing the one who can play best from a professional team. This is a systematic approach. They also have enough experience and wisdom in dealing with various problems. Compared with the United States, I think it may be because the shouting is loud, which makes the people feel that the shouting is reasonable, or makes the big capitalists feel that it will not hurt their interests. It’s hard to imagine that one system uses top professional players for a long time and the other system uses amateur players for a long time. There will be no difference between the two in the long run.
In 2013, we studied Qihoo 360, a free antivirus software company with hundreds of millions of users, which was still listed in the United States at that time. In the process of research, it is found that such an easy-to-use tool may be difficult to become a friend of time, and the tool will be eliminated with the improvement of the system. Viruses are the most annoying thing when we use computers. If we are accidentally infected with viruses, the whole computer needs to be formatted and reinstalled, but who should be responsible for antivirus? It should be a good thing for an underlying operating system. Microsoft’s Windows is obviously not doing well, but it is constantly being patched and optimized. We now use Apple’s mobile phone, because Jobs is an extreme user experience advocate, so Apple’s operating system is closed, and we use the iOS system to find that there is no need for anti-virus software. Using iOS and Android as time goes on, Android will slow down and become stuck, and iOS will always maintain better fluency and user experience.
China’s government’s anti-vice campaign is a great project. I think since the government promoted this project, China has officially stepped forward to become the country with the most security and happiness in the world. In China, it is illegal to hold a gun. You don’t have to worry about sudden unexpected trouble and violent incidents, because the government’s enforcement is very thorough, and this action has penetrated into every county and village, which really provides an environment for living and working in peace. Today, the cost of committing crimes in China has become very high. In Shenzhen, a lost mobile phone can be found within one hour, and basically the traces left by the crime will be tracked by the ubiquitous Skynet. Therefore, in China, it is happy to choose to be a good person, but it is more and more difficult to be a bad person.
Why is China’s efficiency against Covid-19 much higher than that of other developed countries? The most fundamental reason is that this country is doing a better job in order. A city with a population of more than 10 million was closed when it was closed, and each province sent support teams to Hubei for counterpart assistance, thus solving the problem of medical run. Everyone has WeChat, and the government can track everyone’s whereabouts. The entry and exit of the community is a good gateway, and the nodes and routes are clear. After the infected and suspected infected contact people are tracked, they can clearly take the initiative. In other words, China is the only country with clear data on the measures to combat the epidemic. When the epidemic broke out all over the world, China became the best and safest country in the world to control the epidemic.
How important is the sense of security, which is the most important factor for a species, a civilization and a country. If you don’t believe me, look at the history of the rise of the United States, because in the more than 100 years of the European war, the most remarkable group of European elites left their motherland and went to the United States, far away from the battlefield, because survival is human instinct.
China is the longest-lasting human civilization in the world. The genes of agricultural civilization originating from the Loess Plateau inherit cooperation, mutual help, and harmony between the old and the old, the young and the young. The first divination of the Book of Changes, the dry divination, is a country with dragon’s blood. It is about to cross the dry all day long or jump in the deep, an oriental dragon ready to take off at any time. This is our country. It is the greatest luck to be born in a great country in a great era. With this article, I would like to express my great love for this country and arouse more people’s feelings.
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