What is a Moatless Musing - Start Here
Aren't we all supposed to look for moats in investing?
China is in vogue again - I’ve witnessed a surge of the Professional Opinion HaversTM (h/t: Kevin Xu) engagement farming their Reddit/Wikipedia-derived China ‘insights’ and a resurfacing of the macro prognosticators making bold predictions of how China will implode (for anyone else interested in getting into the prognostication business, their audacity to continue to do so is rather inspiring given their piss poor track record). Failing up, it seems, is not limited to Mutual Funds gathering assets despite underperformance.
As for the schizophrenic headlines from major media outlets that toggles between “China is failing” to “China is dominating the world” - I do not believe it dignifies any attention as it is more entertainment and less information.
What is the genesis behind Moatless Musings?
You may have noticed the recent influx of YouTube Vloggers leveraging the 144 hour transit visas to visit China. As background, the 144 hour transit visa is a landing visa available for citizens of some 50 countries to visit specific regions of China for 6 days so long they have a valid passport + transit flight out of China. Anecdotally, these vloggers have been able to generate multiples of their normal views based on what I thought was ‘average’ but reasonably fair and unbiased content. Below is an illustration - Sammy and Tommy were able to generate some 600k views - an anomaly vs. their other videos.
Having watched a few other videos, the script is simple yet effective, with some key ‘talking points’ or ‘takeaways’:
The entire experience is framed as an antithesis of what these vloggers have been led to believe (whether this is for exaggeration is another story) - “you won’t believe what we saw”, “China is not what we expected” - the engagement farming is real, but it does seem people have been positively surprised.
They convey surprise at how ‘nice’ average Chinese people are and how safe they feel (with full acknowledgement of how there are cameras everywhere);
Pollution is demonstrated to be much less of an issue as evident from the frequent occurrence of blue skies;
Deliciousness of Chinese food is abundantly mentioned;
On some of the more negative/annoyances:
Payment system remains an issue - despite recent efforts to ensure AliPay and WeChatPay accepts foreign credit cards/debit cards - travel vloggers continue to struggle with digital payments;
Transit access - I, for the life of me, cannot understand why Beijing requires Personal ID for purchasing a subway ticket via the ticketing machine; it also looked as if few travel vloggers knew to use AliPay/WeChatPay to access transit and instead buy tickets manually;
Map/Navigation - the lack of Google Maps is a clear struggle, and the lack of English version of A-Maps (possibly the only product in which Alibaba is gaining market share) is certainly inconvenient; Fortunately, Apple Maps is available as an acceptable, but suboptimal replacement.
Truth is, the 144 hour transit visa policy has been more effective at ‘telling the Chinese story’ than all of the contentious Confucius Institutes built globally - the positive truths should be self evident to anyone who is visiting (as we get sufficient dosage of negatives it really is not worth my time to repeat them). If anything, the positive ‘surprises’ experienced by tourists who aren’t “China Experts” shouldn’t (and certainly needn’t) be surprises but rather should be accepted norms for anyone going to China the first time.
What this amusing episode made me realize was that there is indeed demand for nuanced content about China told with a global audience in mind. However, noting that the vloggers in general have only visited Tier 1 (and occasional Tier 2) cities with a traveler’s perspective, I am confident I can add more with observations from a business/investment perspective (and…for better or for worse, without the flare and bombast of Shaun Rein).
Fundamentally, if you need to make decisions (investment or otherwise) with China as a key “What Matters” - be it risk or opportunity - you need to know what is *actually* happening, as opposed to the confirmation bias algorithmically recommended by social media.
What *do* I have to add to the discourse?
As an homage to Charlie Munger, instead of telling you what Moatless Musings is about, I will invert the question and begin with what it will not be about.
It is not a blog on Chinese EVs and I am certainly not going to frame the dominance of Chinese EVs as some underappreciated insight that nobody knows about.
Too many people have spilt an inordinate amount of digital ink on Chinese exports of manufactured products - most recently, Electric Vehicles. I am certainly not as in the weeds as some others out there. I’m going to assume you, the reader, have access to YouTube (or Bilibili) and can look up the countless reviews of why BYD’s products are great, or why Li Auto has a great sense of product market fit. Practically speaking, the Chinese automotive OEM space (and investing in this space) is as competitive as Chinese Table Tennis, and I do not believe the alpha opportunities/investment implications of the EV industry in China is befitting of more attention, certainly not from me.
It is not going to be a politicized rant about the economic implosion of China nor will it be about the global dominance of China…
It’s been long clear to me that much of the China commentary in the West is focused around the impending collapse of the Chinese economy, or around the inevitable implosion of American society from an unstoppable China. In an information environment with increased bipolarity, it has never been easier to confirm of your priors. Through a dispassionate lens, I can offer a more objective and nuanced account of what I am witnessing from the lens of a fundamental bottoms-up investor in various industries. If you are interested in more ‘mainstream’ opinions that fits your priors, Noah Smith is your guy.
It is not VIC where I ‘pitch’ you on ‘sure things’…
Too many people have too much conviction on inherently uncertain things. I am most likely going to present to you my observations, learnings, and reflections - and as I have frequently written on Twitter, I hope this is the beginning of a conversation and am more than happy to be proven incorrect.
It will not be uncited regurgitation of WeChat Official Accounts or Weibo Accounts…
While I do read and appreciate thoughtful content on WeChat and Weibo, I will not be copying/pasting content from WeChat/Weibo without proper citations (certainly not going to present them as if they are my own content). I will certainly refer to and I expect to translate some articles from Chinese to English, but Zichen Wang at Pekingnology does (and will do) a better job of bringing thoughtful content from Chinese internet to you. You have much to gain from following him.
Because I’m not committing to posting on a regular interval…
I have a full time job - and am spending most of my time engaged in that pursuit - so I cannot commit to regular posting. Robert Wu at Baiguan is your go-to if you want consistent commentary on what’s happening in China without the editorial lens of any particular mainstream media.
…I will not be forced to come up with things to post about because I need engagement.
It has never been easier to know 80% of what matters using 20% of the time - but unfortunately it has also never been easier to believe you are an expert when you are at the peak of the Dunning Kruger curve.
Insights > Verbiage. I will only write when 1) I believe something is of importance; and 2) I have something to add.
Not a tourist…
I have over 10 years of investment experience, including in China. I’ve met hundreds of companies globally (including many in China) and visited dozens of factories.
My WeChat contact list includes what I believe to be a representative slice of the Chinese society: from billionaire founders to migrant worker Didi drivers and everyone else in between; from my retail investor of an aunt managing her 20,000 RMB to multi-billion dollar fund managers; my relatives in China include those who’ve become global HNWIs through their hard work and those who are currently unemployed.
As a bi-cultural (anyone who cites ‘bilingual’ as some sort of ‘eDgE’ is fooling you and themselves) transplant, I am as likely to be found debating about the difference of Buffett vs. Munger as I am the difference between Justin Yifu Lin and Wu Jinglian; I enjoyed watching The Knockout and Yongzheng Dynasty as much as I did House of Cards and Madam Secretary; and I most certainly do not discriminate between a refreshing glass of Qinghua 20 cocktail vs. a big bold New World Cabernet.
So what is Moatless Musings?
An easier game…
In typical Mauboussin-ian fashion, I am focusing on an easier game (or as it is called in China, ‘an easier lane’) - this blog will be a diary of my ‘musings’ while observing Chinese industries/sectors as a bottom up fundamental investor. I will occasionally summarize/showcase companies in which I may or may not be invested, which hopefully will be entertaining/useful for you. Many of the companies/industries I’ve come across / researched are not mentioned at all on Twitter or Substack - it is my opinion that we do not need the 43209478293874th write up on how Alibaba is cHeAp, how Tencent Dreams, or how Pinduoduo gamification is changing Chinese e-commerce (that is *so* 2020).
Living in the present…
I believe the well followed gatekeepers of China content - especially those who got here by the virtue of being ‘first’ - deserve some more competition (or ‘involution’). After all it is only healthy that the shots not be only called by the old guard and the old guard should be aware that competition is coming - your ‘moats’ in covering China are going to be eroded as a new generation (h/t: David Fishman) of China watchers (expats and transplants alike) offer more nuanced and independent insights. Come up with better stuff, or be replaced (see below - it’s rather difficult for me to take this seriously when one doesn’t run spell check on a published article).
Anonymously bridging the information gap…
As Robin Zhu (You might’ve realized I’m a big fan via references to him in $ATAT 101) at Bernstein has said before, the world is becoming one where you either have WeChat or you don’t - I happen to straddle both worlds and this blog will help you bridge that gap - with sass and hopefully some insights.
One more thing…
The nomenclature “Moatless Capital” is a constant reminder that competitive advantages are not some inherent ‘status’ that any company, or person enjoys, and instead is more likely a fleeting moment in time. Therefore, I believe the correct mindset is that ‘moats’ are the result of continuous work to get better (ala kaizen) - the focus of competition here, is not vs. others, but instead with oneself. To borrow/paraphrase from the always wise Josh Tarasoff, it is far more useful to focus on the *dynamics* through which a company is winning, as opposed to the ‘moat’ as if its a permanent feature.
Yongzheng Dynasty is great. 大明王朝 even greater!