https://www.gurufocus.com/news/750142/notes-from-duan-yongpings-talk-at-stanford-university
Duan's Q&A session
He reminds me a lot of Charlie Munger – full of wisdom, multi-disciplinary and very concentrated in his investment portfolios. In fact, Duan Yongping basically only owns Apple (AAPL, Financial) and Kweichow Maotai (SHSE : 600519, Financial).
During the conversation, he revealed his secret of success, which he calls the Stop Doing List – a list of wrong things that you shouldn’t do. In his opinion, “resisting doing the wrong things” is more important than “doing the right things.” Many people often do things they know are wrong because they can't resist the temptation of short-term benefits.
The following is the translation of the Q&A:
Q1: What is most important to you? Why?
Duan Yongping: There are different important things in life in different life stages. For me at this age, the most important things are family and friendship.
Q2: Without a sales department, what is your pricing mechanism (for OPPO and VIVO)?
Duan Yongping: If you do enough market research you will be able to set the right price when the products are on the markets. And if you are wrong, you adjust the price. The essence of (electronic products) competition is product differentiation, which means you have to provide utilities and functionalities that others cannot provide. Without differentiation, it becomes a commodity product and can only compete based on price. It’s hard to make money that way.
Q3: Have you ever tried to change your personality and your way of thinking?
Duan Yongping: No. It is very difficult to reshape your personality. But there’s a study done by the China-Europe Business School which shows there is one common personality trait among the CEOs of the Fortune 500 companies - integrity.
Q4: How should Chinese companies respond to the challenges of trade wars?
Duan Yongping: The most important thing for a company is to do the best it can do regardless of what’s going on. It doesn't matter if there is a trade war. A lot of bad companies will use trade wars as the excuse when things are not going well. A great business sees opportunities when the crisis comes.
Q5: What is your logic behind investing in an early stage business (PDD)?
Duan Yongping: I don't usually invest in early stage. I usually only invest in listed companies. I invested in Pinduoduo (PDD) for personal reasons. Huang Zheng is my good friend. I know him well and believe in him. He is among the very few people I know who just gets things.
Q6: Can you talk about your sales and marketing philosophy?
Duan Yongping: Outsiders often think that we place great value on sales and marketing. But that’s not true. In fact, for us, marketing is not that important. The most important thing is our product. No company has failed because their marketing strategy failed. Usually the failure of a company is due to the failure of its product. Of course, I am not saying that we don't want to market our products at all. In fact, our marketing is very effective. The best marketing will tell your customers what they need to know about the products in the simplest language.
I want to emphasize here that marketing is not the essence, the essence is the product. Corporate culture is the most important thing. Advertising can only affect up to 20% of consumers, and the remaining 80% is affected by the product. If marketing is not effective, the product will sell slowly. But as long as the product is good, no matter how good or bad the marketing is, the result will be the same after 20 years – the product will sell.
Q7: What opportunities do Chinese brands have in emerging market countries?
Duan Yongping: I don't know much about this, but I don't think there will be much difference – it’s all about paying attention to the needs of consumers.
Q8: Can you tell us a little bit about your lunch with Warren Buffett ?
Duan Yongping: It’s a philanthropic support for Warren Buffett. I can donate the money directly or I can donate the money through him, but I can learn something from him if I win the lunch auction. Buffett is very logical – listening to him is like listening to smooth music.
Q9: There are two business models in the smartphone industry mobile phone – the Xiaomi model and the Apple model? Which one is better?
Duan Yongping: First of all, from the perspective of customers, Apple is more powerful than Xiaomi. Secondly, in the long run, no companies can make much money by selling cheap products. The so-called cost-effectiveness is just an excuse. We must focus on users’ needs, whether it’s high-end or low-end smartphones. Even the iPhone won’t meet everyone’s needs.
In our early years, we often say our products provide good value at a cheap price. But over the years I’ve learned that we were just making excuses for inferior products.
Q10: What future trends do you see and what’s your advice for start-up companies?
Duan Yongping: This question is too difficult for me. I personally don't care much about the cutting-edge technology. I’m usually very behind in my understanding of new technology and I only invest in companies after I spend the time to understand the business. It’s Apple’s job to deal with new technologies and my job is to find companies like Apple.
Q11: With so many smartphone companies, why is Apple the most successful one?
Duan Yongping: Apple is doing something really rare – they are very focused on their products. Apple's profits come from “making the best products they can possibly make.” The strength of Apple culture is very strong. They have a very sensible "Stop Doing List." And they are focused on satisfying the users and making the best products. We don't really compete with Apple because Apple is like the National Basketball League and we are like the Chinese Basketball League – we are not on the same level.
Q12: Do you have a social “Stop Doing List?” How is it related to investing?
Duan Yongping: I am anti-social. Social events are so tiring and time consuming. There are too few friends worth making and it’s very difficult to know someone really well. In my free time I play golf. Investing is only a hobby for me even though I’ve been beating the S&P.
Q13: Can you explain OPPO and VIVO’s “Dare to be the late comer, but strive to be No.1 in the market as the late comer”? [Apologies for my awkward translation here.]
Duan Yongping: The best have no problem being the late comers. They just do it better than everyone else. The success of our company is not accidental. We stick to our “Stop Doing List” in terms of screening for partners and suppliers. Slowly we build a great reputation, which is very valuable in the long term.
Dare to be the late comer refers to the product level. It’s hard to predict market demand but if others have already educated the consumers and created the demand, it’s more certain. Strive to be No.1 in the market as the later come means we’ll make the best products out there to compete in the market.
Do the right thing first, then rightly do the right thing.
Q14: Have you ever made any investment mistakes?
Duan Yongping: I have never made any investment mistakes but I’ve made mistakes in speculations. The most stupid mistake I made was shorting Baidu (BIDU, Financial). I got short squeezed and lost 100 million to 200 million U.S. dollars. Buffett is right: Don’t invest (speculate) in things you don’t understand even if it means you might miss out on potential gains. Only bet on the things you understand. Focusing on understanding the business model and how the business makes money. Ninety-five percent of investors focus on what the market will do. It’s wrong.
Q15: When will you sell Apple? Why?
Duan Yongping: I don’t need to sell great companies.
In my previou article, I shared the translated version of Duan Yongping's Q&A session with a group of Chinese students at Stanford University. Below is my translation of the second part of the Q&A session. Enjoy.
Q16: How have you expanded your circle of competency after you came to the U.S?
Duan Yongping: Circle of competency is not a circle you draw on the ground and tell others I don’t want to go out inside of the circle. The elements of circle of competency are: Be honest with yourself; know what you know; know what you don’t know. If I can understand something, it’s within my circle. Otherwise it’s not.
Apple's $1 trillion market value? I never care about this. I only care about its ability to make money. After buying a company I don’t intend to sell it unless its profitability deteriorates or there’s a better use of capital. When I buy a company there are only two filters: understandable and low price compared to value.
Q17: How do reconcile “never giving up” and “Stop Doing List” for entrepreneurs?
Duan Yongping: "Stop Doing List" is about doing the right things. If you know it is wrong, you have to stop. It’s the same with starting up a business. Doing things right is about methodology, which can be learned. If you don't know what is right or wrong, then it is difficult to achieve success in life. You have to have a clear idea of what’s right and what’s wrong and stick to doing the right thing. For example, smoking is bad, yet many people do not quit smoking. Because even though they know it’s bad, they cannot resist short-term temptation.
Q18. Why don't you speak to the media?
Duan Yongping: I don't want to leave the impression that I still control the companies (OPPO and VIVO) and steal the CEO's thunder. In fact, I have not been active in the companies for more than 10 years. If I were still of the CEOs of both companies, they would not have been unable to do so well.
Q19: What do you think are the differences between China and the U.S. in terms of starting up a business?
Duan Yongping: The U.S. is better. It’s harder to do business in China because besides running your own business, you also have to deal with a lot of miscellaneous things that don’t really matter.
Q20: You are against using leverage. But what if you miss the opportunity (by not using leverage)?
Duan Yongping: You make faster money with leverage of course. But as the saying goes, “When you walk by the river all the time, sooner or later you’ll get your shoes wet.” Why take this risk? By the way, most of our past competitors have long gone, and we are still alive, and the reason may be here.
Q21: What do you think of the smartphone protection case industry?
Duan Yongping: I don't understand it. But I know that good products don't needs to be promoted. When smartphones came out, it didn’t take much time for them to become popular. If your products don’t sell very well after launching, it’s probably because they are not good enough. You have to think about what the problem is.
Q22. Career advice for young graduates?
Duan Yongping: Fulfill your duties well and don't jump around. Many people in Silicon Valley like to quit. But I think it’s better to spend 30 years at Apple than jumping to another start-up.
Q23: What’s your advice for starting up a business?
Duan Yongping: If you don't understand what you are doing then it’s impossible to make the investors believe in you. Huang Zheng is a little bit better. He will keep asking what does this mean? Why is that? He focuses on the nature of the problem.
Q24. How do you think about corporate culture?
Duan Yongping: Corporate culture is all about mission, vision and core values. "Mission" is why the company is established. "Vision" is where the company is going. "Core values" is what is right and what is wrong.
Recruiting has two dimensions: Recruit the people that fit and recruit the people who quality for the job. Whether a candidate “fits” refers to whether there’s cultural matching. And qualification is related to his or her background experiences and abilities. It’s very dangerous to hire qualified candidates who don’t share the company’s values. Eventually they will be trouble makers.
Q25: What do you think of the Chinese companies who outsmart their competitors by taking shortcuts?
Duan Yongping: Alaska has a saying: “Taking the shortcut is the fastest way to get lost.” Success based on taking shortcuts is not sustainable.
Q26: How do you judge whether the stock price is cheap or not?
Duan Yongping: This is a question that people who pay attention to the short-term market fluctuation will ask. I don't think about it. I am concerned about the long-term and do not invest in companies I don’t understand. Anytime you start caring about what the market will do you may be on the wrong track. I don't look at the market. I pay attention to the business fundamentals. If you say a stock is expensive, how do you know? But if you have a 10-year horizon, you know it’s cheap. The market price is significantly below your estimated intrinsic value of the business, assuming you understand the business of course.
Q27. How should we understand the “Stop Doing List?”
Duan Yongping: The main thing is to do the right thing. It's not a skill or a formula, but a way of thinking: If you find something wrong, stop doing it immediately, because the opportunity cost is minimal at this time. But I can't tell you what is right or wrong or how to judge what’s right or wrong.
In terms of doing business, you should never lie to users or investors. You should know everything you say is a promise. When you don’t have the skill and a viable business plan, you shouldn’t go out and find investors. If you don’t know what you are going to do, how can investors believe in you?
As for how to do things right, it takes time to develop skill sets. If you stick to the Stop Doing List, amazing things will happen. In this regard, OPPO is the same as Apple.
"Stop Doing List" also means no shortcuts. You have to accumulate the experiences and lessons over time. When you find something wrong, stop right away. If you can stick to the “Stop Doing List,” the long-term cumulative effect is very obvious. Many people can't let go of the temptation, and they are the same 30 years later. If you are wrong, you must stop and resist the short-term temptation.
Q28: How to raise a kid in Silicon Valley?
Duan Yongping: The most important thing is to give your child a sense of security. How? Spend quality time with them. Be a good companion. Make friends with them. Put the phone away when you play with them.
Love them unconditionally. The Chinese parents often give conditional love. The Chinese also love to boast to their friends about how outstanding their kids are, which can put a lot of stress on them. The kids may think their parents only love them because they are outstanding.
I try to not say “no” to my kids unless it’s principle related. I let them explore.
Q29: What do you think of Warren Buffett (Trades, Portfolio)?
Duan Yongping: He is a very good person. He is sincere to people. He is very wise and can explain any complicated question in one sentence or two. He is so successful but kind at the same time. He is very rare.
Q30: Why do you sell Netease (NTES)?
Duan Yongping: I don’t feel too comfortable having too much capital managed by Ding Lei, who I think of as a big boy. Although the stock price proves that I may be wrong in selling my Netease stocks.
In my previous two articles I translated the first 30 questions and answers of Duan Yongping's Q&A session with a group of Chinese students at Stanford University. Below is my translation of question 31-53 and Duan Yongping's answers.
Q31: What’s your thoughts on Tesla (TSLA, Financial)?
Duan Yongping: Charlie Munger (Trades, Portfolio) once said that Musk is a proven genius. His IQ may be 190, but he thinks his IQ is 250. But to run a company, you must be rational. I think Tesla’s value is zero. The company’s culture is very bad.
Q32: How do you build a long-term friendship?
Duan Yongping: Be sincere with people. I've learned this from Warren Buffett -- the most important thing in my life is friendship. Therefore, be tolerant, be kind and be honest with your friends. He didn't say you need to have a lot of friends. A few good friends is enough.
Q33: How do you sustain a good culture?
Duan Yongping: There are no secrets. The best way to maintain a good culture is to find people who share the same values because it's very hard to convince people who don't believe your culture. And you can tell by body language.
Q34: How do you choose the right partners and employees?
Duan Yongping: It would be extremely fortunate to find the right partner on your first try. You have to have your own standards and eliminate the ones who don’t fit over time. You also have to have the courage to end the partnership if you know you’ve made a mistake. The earlier the better.
Q35: Can you give an example of your "Stop Doing List"?
Duan Yongping: I can’t think of a current example. I majored in radio communications. But I didn't do this because it was not something I loved doing. When I graduated from graduate school, I found a job and my boss said that you could be the director of the company in a few years and we’ll give you an apartment. But I was not interested in them so I left.
Many people often think there aren’t many opportunities for them. But in fact, what really happens is that they do not have the courage to stop doing the wrong things. Again, when you find yourself doing the wrong thing, stop doing it right away. I always think long term. If you focus on the short-term interest, you’ll be the same in 30 years.
Q36: Are there any misunderstandings of the United States against China?
Duan Yongping: Americans' understanding of China is generally very good. I support being politically correct, because if you are not even politically correct, how can you be correct? The current president of the Americans is very confused, but I believe that it will eventually get better.
Q37: What is the most important thing about investing?
Duan Yongping: Right business with right people at right price. Right business is about the business model. Right people is about the corporate culture. Price is not that important; business and people are the most important. Culture has a lot to do with the founder. Business model is the way to make money. This is something you have to realize yourself. I can't tell you. Just like if you don't play golf, I can't tell you how fun it is.
Q38: How should entrepreneurship persist?
Duan Yongping: My understanding is very simple. If you can't hold on, you can't hold on. What you insist on is definitely something you can't put down. You will know by yourself.
Q39: What’s your view of bitcoin?
Duan Yongping: I am not interested in things that do not generate cash flow. I don't understand the blockchain. But that doesn’t mean you can’t understand it.
But I don't understand, it doesn't mean you can't read it. You have to vote for yourself to understand.
40: How do you keep calm?
Duan Yongping: It is not difficult to keep it because it is already there (it is something already in you). However, Jack Ma also said: "It is very difficult for ordinary people to keep calm.” So you have to be rational and philosophical about adverse events.
Q41: How do you find your passion?
Duan Yongping: If you always stay where you don't like, you may never know what you really like. So if you find the wrong thing, you have to stop. Try more things and you’ll find what you love.
Q42: Do you think that failure is inevitable but success is accidental?
Duan Yongping: There must be a reason for success.
Q43: If you could choose to live another life, what would you do differently?
Duan Yongping: I don't know, I didn't think about it. Maybe drink less red wine?
Q44: What do you want to tell your son at this point?
Duan Yongping: It is useless to tell him what to do. As Warren Buffett said, watch what you do, not what you say.
Q45: How do you find the right thing to do?
Duan Yongping: I have time to think. I may think for a long time and one day I may have a eureka moment. When I was thinking about the advertising lines for my first business’ major products, I thought about it for half a year. Many people are busy all day long and have no time to think. They may never understand.
Q46: ”‹”‹Is there a big crisis in China?
Duan Yongping: Some people also asked on WeChat whether there will be a big crisis coming. I said that I think we have always had some sort of crisis. Some people see problems and others see opportunities.
Q47: What do you think of the trade war?
Duan Yongping: If you look back at today 10 years from now, you’ll see the trade war, too, shall pass. If we have a bear market, Apple will come out stronger with so much cash. When the market goes down, you should buy a good company.
Q48: How did you find the mission of your company?
Duan Yongping: We slowly explored what our products should look like. If you find it is wrong, stop quickly. Take Apple's new charger as an example. They still haven’t launched the new charger after a year when they said they were going to launch it. It is definitely because there’s a problem with the charger that has not been resolved. If you don't solve it, don't push it to the market.
Q49: We are afraid of getting into the wrong occupation. But how do you choose among what you like, what you are good at and what looks like a promising industry?
Duan Yongping: If you know a job you enjoy and are good at, and the company is in a cutting-edge industry, go for it. The problem is that it's hard to know, so I would give priority to what you like. Money is not a good thing, because earning money is a lot of fun, and once you have a lot of money you lose a very important pleasure. You’ll almost always have enough money. It is more important to do what you like.
Q50: Is Apple Watch ECG FDA certification valuable?
Duan Yongping: Of course it is valuable. First of all, it attracts a lot of attention. Second, you have to have the certification for the doctors to admit its legitimacy.
Q51: What is the next breakthrough in machine-human interaction?
Duan Yongping: I don't know. But the machine is definitely getting stronger and stronger. Human beings people have lost to machines in Go. I would say this, you can't beat the machine if you speculate in the market. But in terms of investment, the machine will never beat human beings because the machine can't understand the essence of the business.
Q52: What’s your view of price discrimination (different prices for different customers)?
Duan Yongping: If there’s price discrimination, customers will find out sooner or later. Second, once the customers find out about it, they will try their best to bargain with you and waste a lot of time. This causes a lot of unnecessary issues. A consistent price will save a lot of trouble. The main thing to do is to cater to the customers’ needs. Take a look at Airbus's John Leahy.
Q53: Why do you invest in Huang Zheng and Pinduoduo (PDD, Financial)?
Duan Yongping: I have been friends with Huang Zheng for more than 10 years. I know him well and I trust him!
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