What Doesn’t Work in Investing

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I predicted negative oil prices in April 2020 — and from the data I have seen I was one of only a handful of investors to do so. Some people reached out to me and asked whether I am a dedicated short seller or a specialist in commodities or futures trading. My answer is NO!

I did not make that negative-oil prediction because I wanted to short something, nor because I wanted to do something global macro. I made that prediction because I study fundamentals. I think in “first principles,” which leads me to focus on the fundamental truth of a thing — and in this case, the supply and demand of crude oil, a study which eventually led me to conclude there would be a severe surplus of oil supply and the world would run out of storage space for crude oil, thus we would see negative oil prices.

Ironically, if I were someone who works in the oil & gas industry, or someone who works for a global macro hedge fund, I might never have been able to make that negative-oil call. Conventional wisdom would judge that I don’t have the “right” background to form a “right” opinion on crude oil prices. Even until today, I have never seen a barrel of crude oil with my own eyes. Yet it was exactly my unconventional background — zero oil & gas industry experience, in particular — that enabled me to see things in a new and different light, eventually arriving at that very unconventional prediction.

Weird, is it? Why almost no industry experts nor investment specialists saw the negative-oil coming?

Let us zoom out a little bit.

Let us look at the investment industry as a whole.

The investment industry attracts some of the most talented people on earth. The talent pipeline of this industry is filled with golden resumes: finance undergraduate from a prestige college, investment banking analyst program, buyside analyst/associate, MBA from a top-tier b-school, then an elite job at a hedge fund or PE/VC — in other words, exactly what most hedge funds look for in their recruits.

That path is the “right” path, the path that offers the highest probability of “getting there.” More and more people take it. It is the conventional path. Why not? As time goes by, the talent pool overruns with people sharing all too similar backgrounds.

Eventually, the investment industry reached a point where the reality becomes inconveniently awkward: there are so many of them doing the same thing and the market is too competitive for any one of them to win!

Not because they are not good enough. But because they are too much alike. They imitate. They become conventional.

Imitation doesn’t work in investing. Investing is a people business. People are not machines. The market is dynamic. The market learns. What works today probably will not work tomorrow.

That is why the greatest investors usually come with unconventional backgrounds: some are self-taught; some have zero investing experience before launching their own funds; some only entered the investment industry after spending years doing something totally unrelated.

So, I believe today’s market is won by unconventional investors. Because they are already so far behind at the start, they must run faster, run longer and run smarter! They know either they become the best or they get nothing! They have no choice. Because they do not have the “right” background, they must work harder and be more creative.

Because I don’t have a background in oil & gas, I had no choice but to ask myself the most basic and most fundament question — how was the supply and demand of the world’s oil market? Because I am unconventional, I asked the right question, which led me to the right answer.

And that is why, I believe, the trophy of investing belongs to the unconventional players.

Imitation doesn’t work in investing. It brings nothing but mediocracy. Be unconventional. Unconventional success calls for unconventional people.

How I successfully predicted negative oil prices and what I learned from it

On April 19, 2020, I became convinced that over the next two days, prices of crude oil would drop below $0.  The next day, April 20, oil opened at $17.73 a barrel and closed the day at negative -$37.63 a barrel.

To help us appreciate the magnitude of that epic collapse, the oil price chart below showing the past 25 years would be helpful.  See that big plunge?


To be clear, I am not an oil expert.  I never worked in the oil industry.  For the past many years, I have never visited any oil field nor spoken with any person who work in the oil industry.  Even until today, I have never seen a barrel of crude oil with my own eyes.

So, how did I successfully predict negative oil prices?  It’s a bit of story.

“Go buy oil!  I’m all in!”

In early March this year, Russia and Saudi Arabia got into an oil price war, sending the price of oil under $30 a barrel.  A friend of mine poked me and suggested that oil is a good investment — it was a simple and convincing idea: oil had become too cheap, too attractive.

Within the next few days, oil further weakened to around $19 a barrel.  What does $19 a barrel mean?  No time in the past 10 years oil traded below $20 a barrel.  No time in the past 20 years either!  That piqued my curiosity in oil — specifically, in buying oil.

Why buying oil?  I believe oil was unusually cheap and oil could not stay at the present level for too long.  The U.S., Russia and Saudi Arabia, these three countries dominate the world’s oil production with a total market share of about 40%.  All three countries have strategic relations with oil.  In the U.S., the shale oil industry bears strategic importance for the nation’s energy independence and is also a key economic driver for a few large states.  However, shale oil is known for its notoriously high production cost; shale oil producers are known for their highly leveraged balance sheets.  A sub-$20 oil price could bankrupt the shale oil industry and cause large-scale unemployment.  So, oil prices could not stay that low for too long, I reasoned.

For Saudi Arabia and Russia, what really matters is their “fiscal break-even oil price” as both countries are highly reliant on oil incomes.  There are various views on this, but almost all sources agree that the two countries’ break-even oil prices are way above $20 a barrel, if not a few times over.  A sub-$20 oil price, if it lasts an extended period, could potentially bankrupt these countries.  So, oil price could not stay that low for too long.

These high-level analyses led me to conclude that, as long as 2020 is not the end of mankind, the price of oil will and must recover relatively quickly to its “normal levels,” like $40 a barrel or above.  That implies a quick return of over 100% if I buy oil now.  What a great idea!

That was the weekend of April 18, 2020.  I decided that I was going to go all-in with oil.

Wait a night

For big ideas, I tend to sleep on them before making a final move.  I benefited from this behavioral pattern many times in the past and this time was no exception.

Lying on the bed and waiting to get into sleep, I kept mulling over this “buy oil” idea and asking myself on what basis I could end up losing money.  I knew price will be volatile in the near term.  I knew price will eventually recover in the long term.  I had no problems with these two.  But was there a third scenario out there that I didn’t see?

And I kept asking myself: how can I get seriously harmed if I buy oil now?  My account goes to zero… that would be bad.  Can it get worse?  Can I owe someone money if things go terribly wrong?  Hmmm…

That thought sent a chill down my spine.  I jumped out the bed, ran to my computer and Googled “negative oil price.”  Guess what I saw?

CME Group (April 15, 2020): Testing Opportunities in CME’s “New Release” Environment for Negative Prices and Strikes for Certain NYMEX Energy Contracts

Hmmm… interesting… The exchange on which oil trades tested their system for “negative price.”  These people might know something I do not know.  I kept reading on CME’s website until I arrived at the “contract specs” page.  And I saw something that I knew long ago, but I didn’t really think about it until then — crude oil futures contracts are “physical” contracts.  It means if you are long crude oil futures contracts on the expiration date, you are obligated to physically accept barrels of crude oil.  Yes, physically, in the most literal sense, at a place called Cushing, Oklahoma.  And to accept delivery, you need to have storage space ready.  Oil needs storage space.

This “oil needs storage space” train of thoughts led me to another round of Googling that night, searching keywords like “oil storage cost,” “oil storage space availability.”  All search results pointed me to one direction:  the world was running out of storage space.

How could I be sure I was getting the right information from the Internet?

I am always skeptical on opinion pieces that I read on Internet.  There are too many opinions flying around these days on Internet.  I am not an oil expert.  I do not know any person working in the oil industry who I can call and ask for help.  It was late into the night and it was a weekend — how could I independently and immediately verify that the world was about to run out of storage space?

Price… price… what’s the current price of oil… I mean what’s the spot price of oil now in the U.S… not the price at nearby gas stations but the price people working in the oil industry pay… the spot price…

I typed “oil spot price” in Google.  And within a second, I saw multiple news articles reporting that prices of spot oil had lowered into low single digits, like $2 a barrel, in multiple locations across the U.S.

That “$2 a barrel spot price” convinced me that there was a real shortage of oil storage space.

I suddenly realized that for most people who were still long crude oil futures, they would likely run into troubles because there would be no storage space left for them to take crude oil deliveries.

When would the forced selling happen?  How to time it?  I went to CME’s website again and looked at the soon-to-expire oil contract.  Its expiry date was April 21, 2020 (Tuesday).

If I was right, on or before April 21, 2020, the people who were long the near-term crude oil futures would “wake up” and realize that there would be no oil storage space for them in Oklahoma.  And if they could not fulfill their “obligations,” they must get rid of these “obligations” — they would become the forced sellers of the near-term futures contracts…

I saw it!  I saw it!

I saw an epic wave of sellers that the world had never seen before… arriving… on either April 20 or April 21…

There would be few buyers on these two days… People were running out of storage space…

Oil would collapse… into the negatives…  It would be epic!

Aha!  That was why CME tested their systems for negative prices…

I saw the vision.  I saw it.

I told a few friends my ideas.  They told me I was crazy, and I should go to sleep.

The rest is all history.


I saved myself from a huge financial disaster and instead turned it into probably one of the best ideas that I ever had.  (The other contender is my prediction of Uber’s failure in China, see here.)

What did I learn from this experience?

  • Price is ultimately determined by supply and demand, not by people’s opinions.  The price of oil collapsed into the negatives despite the overwhelmingly one-sided opinions held by almost all people that “oil was too cheap.”  If a market has no buyers but only sellers, price collapses.  Economy 101.
  • Asset can become liability in a snap. We must know what we own.  Some securities have a bipolar nature and you need to know it before it is too late.
  • Be very flexible and be open-minded. Challenge your own thoughts.  If it is a big and important decision, please mull it over again and again.  Also, be ready to act very quickly.

A secondary question is: why did most people not see the negative oil price coming?  The brokers, traders, asset managers, oil experts… Here are my answers:

  • Separate opinions from facts. When we think, think in facts.  Do not think in opinions.  Opinions are usually products of “first order thinking,” especially opinions that have not been updated for years.  They are usually littered with obsolete knowledge and they are often biased because of the owners’ preconceived notions of “how things should always be.”
  • Be very open-minded. Something that has never happened before does not mean it cannot happen in the future.  Just because you don’t believe it does not mean it will not happen.
  • Apply a lot of common sense. Think independently on your own shoulder.



It’s a volume game

close up photography of yellow green red and brown plastic cones on white lined surface

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I am always intrigued by the question of “what are your interests?” I ask myself this question often. I also throw this question to others. One business school student answered: “my interest is to find an investment banking job.” Well, he was not really answering my question.

Many people see their short-term goals as their interests. This is a mistake and I believe this is why many high-achieving people don’t feel happy (even after they have attained their goals). By not seeking to know their own interests, people end up spending their entire life doing things they don’t like and they don’t care.

I believe “what are your interests” is an important question to be answered. I also believe the answer to this question probably is not a fixed one but will morph as time goes by.

Ok, but how? How can I figure out what my interests are? And as my interests may change, how can I keep answering this question throughout my life?

Personally, I have grappled with these questions a lot. With great confidence, I argue it is impossible to figure out one’s interests by just sitting still and “thinking.” Human beings are like computers: we are both a piece of hardware and software. Without interactions with the outside world, there is no way we can acquire, understand and appreciate new experiences.  Imagine you ordered a new computer and it got delivered today — do you expect it to show you your latest work email right away or immediately start loading your favorite PC games? Of course not. Your computer needs to connect to the Internet (be exposed to the outside world), download software programs (gain new experiences) and then it can start performing tasks (know how to do things).

And that brings to my second point — we must keep doing new things. Every new experience is an attempt to figure out what gives me energy, what drains my energy. By repeating this process again and again, we will come to one or more “aha” moments of “I love this” or “I have this.” Stated another way, we will not be able to say “I love doing XYZ” until we have tried “XYZ” or something close. And the prerequisite to this is — I must have tried a lot of things.

This line of thoughts eventually led me to realize something bigger — “it’s a volume game.” A newborn baby will not be able to tell his or her favorite dish until he or she grew up and tried many buffet dinners. It’s about the “volume.”  Similarly, I won’t be able to figure out my interests until I have tried a lot of differently things.  It’s a volume game!

This idea probably applies to a few other areas:

  • A money manager generates new ideas by studying new companies and new markets and even switching to new investment styles from time to time.
  • A great company lasts by rejuvenating itself with a new culture.  Think Microsoft’s Satya Nadella, AMD’s Lisa Su and PepsiCo’s Indra Nooyi.
  • A happy person usually is open minded.  He or she is consistently reading new books, meeting new friends, trying new food and/or travelling to new places.

So, if you don’t like the book you are reading, stop reading it and move onto the next one.

If you don’t like your current environment (city, job, etc.), change it.  If you cannot change your environment, leave it behind and you move on.

If you don’t like what you are doing right now, stop doing it and start doing the next thing.  What’s the next thing?  Stop over-thinking — there is always something there alive in your head speaking to you, even when you are asleep and dreaming!  Just do what it says.  Don’t settle.  Be experimental.  Keep doing.

It’s a volume game.


Scientific Thinking and the Danger of Not Doing So

high angle photo of robot

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As I wrote in December 2019, “Think Scientifically” was one of my five key takeaways from 2019. Of late, it has become increasingly obvious to me that there is great value in scientific thinking — and, not doing so is unusually dangerous.

To think scientifically, I believe, is to think independently, to be grounded in facts and free of preconceived notions. Scientific thinking seeks truth, not opinions. It welcomes different ideas, new ideas. It also encompasses the willingness to acknowledge that “I can be wrong.”

Scientific thinking is unusually powerful. It is what enabled us to fly to outer space and to dive into the deep ocean. It allows us to live longer. It gives us an increasingly rich life experience. It is a key driver that propels a person, a country, and a civilization forward.

Not thinking scientifically, however, is insidiously dangerous. In that case, a person would believe strongly that he is thinking hard, doing a lot of work, driving to sensible conclusions and making great decisions, while being totally unaware that his work is littered with preconceived notions and his conclusions are grounded in preexisting opinions. Mistakes are thus made faster and deeper — and the person has no idea of what has happened to him!

Many well-regarded newspapers are increasing reporting “opinions” (what they want you to know about the world) rather than “facts” (what has actually happened in the world). More and more decisions are grounded not in facts but in some obsolete, irrelevant or biased opinions. Conspiracy theories, like no other time in our lives, are prevalent across various media types. I am deeply concerned by what is going on, because it appears to me a growing section of the society has decisively abandoned “scientific thinking” by conflating facts and opinions as one.

If you are unsure about whether you are thinking scientifically or not, I would suggest a simple tactic: talk to more people, especially those of a different background than yours. If others have a different idea, please defer your judgement — others are not your enemy. After all, framing “others” as the “enemy” is a strategy that cult leaders use to cut their followers from the broader society and to keep them loyal to some extremist ideologies. Nevertheless, talking to others sounds simple but not many people can do it. Staying in one’s own echo chamber cannot be more comfortable. Alas!

Ultimately, I believe it is all about “more facts, fewer opinions.” To quote what I wrote in December last year:

“To think scientifically means to develop thoughts on a foundation of objective facts rather than a foundation of subjective feelings and unfounded biases. Let facts lead us to conclusions, not the other way around. Unfortunately, people often fall in love with an idea first then find data to support that idea.”


Cultural Differences in the Handling of the Coronavirus

person holding test tubes

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In the evening of January 20, 2020, China’s respiratory expert Zhong Nanshan confirmed and announced to the public that the virus had passed from person-to-person. I was in Beijing that Monday evening.

By 9pm that day, when I looked out onto the street, many citizens already had surgical masks on. By the next day, as I was travelling through China on a high-speed train, somewhere between 20% to 50% of people I saw started wearing masks.

Within three days, on January 23, Wuhan was locked down. In the following few days, Chinese cities started requiring citizens to wear surgical masks and implementing other types of social distancing measures. For example, on January 26, 2020, Suzhou announced that all passengers using the city’s subway system must wear surgical masks.

In the U.S., the first coronavirus was confirmed on January 20, 2020 — coincidentally on the same day as China’s outbreak news. Since then, the total case count in the U.S. has risen from 1 to now over 800 (as of March 10, 2020) and about three quarters of U.S. states now have confirmed cases.

However, life is hardly changed in the U.S. If you stroll through New York City, almost no one is wearing a mask — despite the fact the state of New York has more than 170 confirmed cases now and most cases concentrate in or near New York City. In Florida, reportedly, PortMiami is as busy as usual with thousands of travelers still getting on cruise ships for their vacations, even though cruise ships could be extremely dangerous during a pandemic.

Compared to China’s top-down precise-management, clearly, in the U.S., it is much more “laissez-faire.”

These observations led me to wonder what had caused this huge difference in people’s behaviors between U.S. and China, when the two peoples are facing the same deadly threat?

I think the answers probably lie in both history and culture. On the history side, China was struck hard by SARS in 2003 and most people, including me, still have a vivid memory of SARS and its horror. Ever since, in China and across many East Asian countries, wearing surgical masks in the public became an accepted social norm. People in East Asia also understand that draconian measures during a virus outbreak works and they also believe it is warranted. In the U.S., in most people’s minds, there is no SARS or SARS-like events in recent memory. During SARS, the U.S. had fewer than 30 confirmed cases and zero deaths. Having no recent memory of a painful virus outbreak — that is probably why America is not that concerned about the virus today.

The 1918 Pandemic (aka the Spanish flu) was truly horrific. However, the deadly 1918 Pandemic is only vaguely remembered by the general American public today. First, it happened 100 years ago. Few people who experienced its horror is still alive today to tell others the story. Second, the 1918 Pandemic was severely under-reported. The “mother of all pandemics” killed about 675,000 Americans. Globally, it killed far more people than World War I killed. Of the U.S. soldiers who died in Europe, half collapsed because of the flu rather than the enemy they were fighting. Unfortunately, in 1918, the U.S. and many Western countries imposed strict wartime censorship. European and American press were unable to report the virus outbreaks. (history’s quip: Spain was a neutral country and its press freely spoke about what was happening; it was because of Spanish media coverage that the outbreak got its nickname — Spanish Flu.) For these reasons, the super-horrific 1918 Pandemic is largely missing in America’s memory today.

On the culture side, the question is much more abstract. To still answer it, I will focus on a few observations that I have made in recent weeks. First, there appears to be a broad cultural consensus among Americans that wearing a surgical mask is weird. If you wear a surgical mask and walk down a street in the U.S., most pedestrians will stare at you, thinking “what is the problem with you” or “are you really that ill?” So, people in America seem to have chosen not to wear facial masks, because it is not socially acceptable.

Second, in the U.S., there appears to be a cultural norm that any sign of being physically ill is a sign of weakness. But this is not the case in Asia. In Asia, it is common to see an office employee wearing a facial mask because he or she might be coughing. In the U.S., however, if a person is coughing or sneezing, he or she will likely still report to work but wearing no facial mask — because he or she does not want to feel socially awkward. Try to recall the last time you saw an American worker wearing a surgical mask at work. Could you recall any examples? So, people in the U.S. seem to have chosen to go to work even if they are coughing, because they have always done so, and this kind of behavior is accepted by society.

Weeks ago, I was concerned for people living in China. At this point in time during the virus outbreak, I am more concerned for people living in the U.S. — about 8% Americans do not have healthcare insurance; over 60% Americans do not have savings to pay for a $500 emergency; ICU rooms can potentially cost a patient $4,000 to $20,000 per 24 hours.

I hope everyone on this planet to be healthy. I also understand that “you can not see your own eyes.” While I am forming my opinions, I am inevitably subject to my own biases — primarily my experience in Asia.

To conclude this piece, I certainly would choose to join the “hope camp” in hoping the virus can quickly go away. But, what a cultural difference!



Coronavirus: Fear of Asians rooted in long American history of prejudicial policies


The Social Mobility of Stock Markets

The Social Mobility of Stock Markets

— A Historical Perspective into the U.S. and Chinese Stock Markets

My previous piece A Decade of Inequality focused on the concept of “market cap gains.”  It reviewed the end results but paid little attention to how we got there — how did it happen that almost all the market cap gains were concentrated with the largest companies?  Was it because larger companies started bigger so their gains over a decade’s time naturally became bigger?  Or was it because smaller companies collectively never had a chance to grow big at all?

To put it differently, the question that my previous piece raised and that I am trying to answer in this piece is this: over the past few decades, have stock markets in the U.S. and China offered “social mobility” so that smaller companies can still achieve above-average returns relative to their larger peers?

My belief is that, over the past few decades, the U.S. stock market has transformed from a socially mobile market to a socially immobile market.  Bigger companies keep getting bigger.  Middle companies get stuck in the middle.  Smaller companies cannot escape the fate of being small.  Because of the lack of social mobility, active investing in the U.S. is becoming harder and harder.  Also, I believe the reverse is happening in China where there is still social mobility among stocks: small companies can still grow big and the dispersion of stock returns is still wide.  Therefore, China is still a market that rewards active investing much more than the U.S.

The methodology and scope of data for this study can be found in the end note section.

So, let’s see what data says.

How To Read The Charts?

The bar charts on the left show the concentration patterns of market cap gains during the decade.  Stocks are sorted into 10 deciles by the dollar size of their market cap gains over the decade.  Each decile has about the same number of stocks.  Each decile is represented by a bar and the height of the bar represents the total dollar market cap gains (or losses) of companies within that decile.  The 10% of companies that gained the most market cap form the far-right bar in the bar chart; they are the 1st decile.  The 10% of companies that gained the least or lost the most market cap form the far-left bar in the bar chart; they are the 10th decile.  The Y-axis unit is in trillion U.S. dollars.

The box plot charts on the right show the distribution patterns of stocks’ cumulative 10-year returns.  Stocks are sorted into 10 deciles according to their market caps at the beginning of the decade (or at IPO, if they went public during the decade).  Again, each decile has about the same number of stocks.  The largest 10% of the companies, based on their market cap at the beginning of the decade, form the far-right “box,” indicating they were the 1st decile largest companies at the start of the decade.  Likewise, the smallest 10% of the companies at the beginning of the decade become the “10th” decile “box” that sits at the far-left side of the box plot chart.

The dark grey area of a “box” represents the 2nd quartile stocks and the range of their returns; the light grey area of a “box” represents the 3rd quartile stocks and their range of returns.  Similarly, the top edge of a “box” marks the decile’s 1st quartile return; the bottom edge of a “box” marks the decile’s 3rd quartile return.  The amber-colored diamonds represent the average (i.e. mean) returns of each of the deciles.

For ease of comparison, across all charts in this article, the scales of their Y-axes are fixed.

Decade: 1989 to 1999

Universe captured: ~8,900 listed American companies and ~1,100 listed Chinese companies

1999 us1999 china

For the period from 1989 to 1999, the U.S. saw its equity markets increase fourfold in size, from $4.0 trillion to $16.5 trillion.  By market cap gains, the top two decile companies (i.e., the far-right two black bars in the left-hand bar chart) contributed almost all the decade’s $12.5 trillion gains.  The top five gainers were Microsoft, General Electric, Cisco Systems, Walmart and Intel.  The bottom decile companies (i.e., the far-left black bar in the bar chart) lost $291 billion.

Regarding the return distribution of U.S. stocks, for all 10 deciles, at least half of the members in each decile yielded positive returns (i.e., the 2nd quartile “dark grey boxes” are all above the zero-line). Meanwhile, except for the 1st decile, all deciles saw their 3rd quartile returns (i.e., the bottom edge of a “box”) in the negative zone.  This pattern suggests the market was bullish overall, yet there was sufficient divergence in stock performance, which led to many companies with negative returns.  Moreover, both the 5th and the 10th decile companies saw their average returns reaching 500%, meaning a large number of “extremely small-sized” and “exactly middle-sized” companies did extraordinarily well in the 1990s.

China’s financial markets really only started in the early 1990s: the Shenzhen and Shanghai stock exchanges both launched in 1990; the first H-share, Tsingtao Brewery, listed in Hong Kong in 1993.  Companies’ market cap gains were so small that in the left-hand bar chart, the black bars are almost invisible.  By the end of the decade, the total market size of all listed Chinese equities only reached $440 billion.  Among them, the largest five companies were China Mobile (market cap at $86 billion by 1999), CITIC, Shanghai Pudong Development Bank, Lenovo and Sichuan Changhong Electric.

In terms of Chinese equities’ return distribution, it was a picture of extremes.  For the 1st decile companies, their 1st quartile return was negative (measured at -0.29%), meaning at least 75% of the largest Chinese companies lost money during that decade.  From the 1st decile to the 4th decile (i.e. the four “boxes” on the right), half of their members lost money.  From the 6th decile to the 9th decile, however, at least 75% of their members posted positive returns for the decade (i.e., the entirety of their “boxes” was floating above the zero-line).  Regarding the smallest companies, the 10th decile, their mean return approached nearly 350%.

Thoughts for this decade:

  • The U.S. stock market displayed sufficient social mobility in the sense that high-performing companies made huge gains and low-performing ones got punished with negative returns. Put differently, during the 1990s, the U.S. stock market was an environment where good companies went up and bad companies went down.  What was even more encouraging was the fact that many of the “extremely small-sized” and “exactly middle-sized” companies experienced a decade of strong growth.
  • For China, there was so much social mobility in the country’s stock markets that the overall picture looked like a “social revolution” — most large companies went down and most small companies went up. Almost all returns went to small companies.  What a violently dynamic market back then!
  • Given the dynamisms in both the American and Chinese equity markets, it’s no wonder the 1990s gave birth to many active investing luminaries in both countries.

Decade: 1999 to 2009

Universe captured: ~7,100 listed American companies and ~2,300 listed Chinese companies

2009 us2009 china

From 1999 to 2009, the U.S. total market cap changed little, starting at $16.5 trillion and ending at $17.8 trillion, an increase of only $1.3 trillion (about 8%).  Top decile companies gained $5.8 trillion while bottom decile companies shrank by $5.5 trillion.  Winners and losers were reasonably distributed, free of obvious outliers.

Stock return-wise, smaller U.S. companies fared materially better than larger ones.  On the one hand, among the smallest companies (i.e. the far-left “box”), their 1st quartile return reached almost 300% and their mean return exceed 800%!  On the other hand, among the larger companies, from the 1st decile to the 8th decile, about half of them made money and half did not (i.e. the light grey areas of the “boxes” are mostly under the zero-line).

For China, its equity markets grew from $3.5 trillion to $5.2 trillion, a growth of $1.8 trillion (about 51%), outpacing the U.S.’ growth in both percentage terms and absolute dollar terms.  The 1st decile contributed $2.0 trillion and the 10th decile lost $918 billion.  Interestingly enough, over 70% of that $918 billion loss came from the $650 billion shrinkage on PetroChina!

China’s return distribution chart inherits some attributes from the previous decade: smaller companies yielded higher returns than larger companies.  Here, however, most of the larger companies still posted good results, compared to the large-cap bloodshed seen in the 1990s.  What is also noteworthy is that the dispersion of returns (i.e., measured by the height of the “boxes”) appears to have grown wider: wider than itself a decade ago and wider than the U.S. in this same decade.

Thoughts for this decade:

  • Company “social mobility” was prevalent in the U.S. stock market in the 2000s: many small companies grew fast; some large companies declined.  If you are an active investor, you would love to be in the U.S. and live through the 2000s one more time.  Small-cap significantly outperformed large-cap — stock picking worked!  Among the larger companies, about half made money and about half lost money — stock picking worked, and short selling worked too!
  • China was also a fertile land for active investing. Like in the U.S., small-cap outperformed large-cap.  Better than the U.S., the dispersion of stock returns was even wider in China, further enhancing the potential rewards for stock picking and active investing.

Decade: 2009 to 2019

Universe captured: ~6,200 listed American companies and ~5,000 listed Chinese companies

2019 us2019 china

On the U.S. side, the U.S. stock market expanded from $17.0 trillion to $40.9 trillion, a massive gain of $23.9 trillion, which is about equivalent to twice China’s GDP or nine times the U.K.’s GDP.  The top two deciles of companies accounted for 100% of all gains.  Apple, the biggest winner, saw its market value grow by $1.1 trillion — i.e., one company alone managed to grow by an amount equivalent to 40% of the U.K.’s economy.  On the other end of the spectrum, the worst performing American companies were apparently not punished much by the capital market — the bottom decile companies lost only $1.6 trillion of market value, led by Dupont (lost $110 billion), HP (lost $92 billion) and General Electric (lost $64 billion).

In terms of individual stocks’ returns, the 2010s was almost a reverse image of the previous decades.  Larger U.S. companies handsomely outstripped the rest.  Among the 1st decile largest companies, their 1st quartile return exceeded 300%, far ahead of the 1st quartile returns of the remaining nine deciles.  Also, for the 1st decile companies, their 3rd quartile return was the highest among all deciles as well.  The largest U.S. companies simply dominated!  The only realistic hope to outperform U.S. large-caps appears to be the idea of investing with “100 bagger” penny stocks, as indicated by the smallest stocks’ high-flying average return, which stood at about 430%.  (And that is probably why the book 100 Baggers is so popular these days.)  The most underperforming groups are those in the middle — the mid-cap companies of the 6th and 7th deciles.

On China side, the total market cap of Chinese equities expanded from $8.6 trillion to $13.0 trillion, a growth of $4.4 trillion.  The top four market cap gainers — Tencent, Alibaba, Moutai and Ping An Insurance — contributed $1.1 trillion of gains, about a quarter of the market’s total expansion.  The bottom decile saw a meaningful retraction of $1.3 trillion; the biggest loser was PetroChina, shrinking by $207 billion.  Again, PetroChina!

From 2009 to 2019, over 50% of the large Chinese companies — those in the 1st to the 5th deciles — posted negative returns (i.e., the light grey areas of the “boxes” are under the zero-line).  Smaller companies, except for those in the 10th decile, were able to generate much better results, marked by their heightened 1st quartile and 3rd quartile returns (i.e., the top edges and bottom edges of the “boxes”).  These observations support the idea that social mobility is still present in Chinese stock markets.  However, compared to previous decades, the dispersion of stock returns (i.e., the height of the “boxes”) has narrowed in this decade, which may indicate a decrease of company “social mobility.”

Thoughts for this decade:

  • Social mobility was absent in the U.S. stock market. Small- and middle-sized companies experienced a decade of stagnation.  Bigger companies grew significantly faster than smaller ones.  Compared to mega-caps, not only did small- and mid-caps post lower returns but also the dispersion of their returns was narrower as well, meaning there were fewer small companies bucking the trends and giving exceptional returns.
  • Many active investors in the U.S. must have had a difficult decade. Mega-cap stocks dominated all — so, how much could stock picking give outperformance?  Very few companies’ share prices went down, especially among the larger firms — so, how to make money through short selling?  Alas!  What a double whammy for active investing!
  • This story was inverted in China. Index investing has so far not worked in China and it probably is due to the chronic underperformance of large Chinese companies.  On the other end of the market cap spectrum, the small- and mid-cap spaces were highly dynamic, providing a strong tailwind for Chinese active investors.

Summary and Thoughts

These charts speak loud and clear.  For most of the past three decades, in both the U.S. and China, the stock market did offer a fair amount of “social mobility” for companies and many smaller companies did grow faster than their larger peers.  But, for the most recent decade from 2009 to 2019, the U.S. stock market demonstrated a reverse pattern.  All the wins were concentrated at the top:  Bigger companies keep getting bigger.  Middle companies get stuck in the middle.  Smaller companies cannot escape the fate of being small.

For Chinese equities, the 1990s was a violent “social revolution” where almost all gains were concentrated at the bottom.  That was probably “too much” social mobility there.  As the country develops, its stock markets also gradually mature.  Today, the Chinese stock market still offers sufficient social mobility — smaller companies continue to outpace larger companies.  The very fact that index investing has not worked so far in China can almost be seen as a piece of evidence supporting the idea that active investing still works in China.

As a final thought, the following are a few questions to contemplate further:

  • Is the lack of social mobility in the U.S. stock market healthy or unhealthy? Is it an advanced economy’s inescapable fate?  Is it a new normal that we must accept?  Should we do something?  What does this mean for U.S. active investors in the future?
  • I am a big believer that there is always a right investment philosophy for a time, not for all times. What will turn out to be the most effective investment philosophy for the upcoming decade, 2019 to 2029?
  • Given how difficult active investing has been in the U.S., should investors pay some real attention to active investing in China?

End Note:  Methodology and Scope of Data

This study covers all U.S. and Chinese companies that were listed at any time during the past three decades, spanning from 1989 to 2019.

On the U.S. side, my data includes all American companies listed on U.S. exchanges from 1979 to 2019.  Companies listed on Pink Sheets and other OTC-like venues are not included.  On the China side, my data includes all public Chinese companies regardless of their listing venues; the venues are most often Shanghai, Shenzhen, Hong Kong and U.S. ADR markets.  Delisted companies are also included in this study, to the degree I was able to recover their data.

Some quick technical notes:

  • All figures are in U.S. dollars.
  • Stock returns include dividends.
  • Multi-class and multi-listing are “deduplicated” to avoid counting the same company twice.
  • If a company delisted during a decade, its market cap changes are still included in the study for that decade.
  • Stock market cap gains are measured since a company’s IPO date, thus excluding the amount of capital raised from the company’s IPO.

In total, this study covers about 15,900 listed American companies and about 5,500 listed Chinese companies.



Differentiation Is Not A Moat

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If one were to compile a list of the most abused words in finance and investing, “differentiation” (or “being differentiated”) will certainly occupy a top place in that list. Most money managers tell clients that their investment processes are differentiated; most businesses claim their products or services are differentiated. It has now become unusual if a business does not sprinkle its client-facing talks with the word “differentiation.”

Wait… common sense tells us a business can only be run in a finite number of ways… if most players in a particular business claim themselves to be differentiated… That is an oxymoron!

I believe that in today’s context and for many industries, the word “differentiation” has lost its meaning. The notion of being differentiated seems to have born out of the previous time, not our time. In a time when an economy’s supply was limited and people’s choices were few, differentiation was indeed a big deal. In the late 1970s in China, most people rode bicycles of the same model (Tianjin Flying Pigeon) and wore clothes of the same color (black) — differentiation, like you driving a shiny Mercedes down Beijing’s Chang’an Avenue while everyone was riding dusty Tianjin Flying Pigeon bicycles, was a big deal. Today, however, the economy’s supply has vastly outstripped our ability to make choices, flooding us with hundreds of car models and millions of other consumer products; whether you are driving a Mercedes or an Audi (or other make and model) down Change’an Avenue, you are not going to get the same attention like you did back in the 1970s, if you get any attention at all. When there is too much supply (e.g. too many money managers, too many businesses operating in a particular space), differentiation no longer matters.

The availability of technology and resources, further catalyzed by their low prices, has dramatically reduced the entry barrier to most industries, making differentiation far less important and making a true moat more valuable than ever before. The other day I came across a resume which reads “(the candidate has) invented a crypto-currency under his name.” I was impressed at first, until a few hours later when I figured out that there are tons of websites and blogs devoted to allowing an average fellow to create a personal crypto-currency within 10 minutes — Aha! I can spend the next 10 minutes creating a currency called “Jackson-coin” and put the same line on my resume as well!

Unlike differentiation, however, a moat is going to matter more and more in our time.

So, what is a moat? In my opinion, a moat is the thing that allows a business to continuously win.  A moat is an unfair advantage. It can last and it is hard to copy. It gives an enduring competitive advantage to a person, a business, a product and a process.

I see two types of moats:

  • Type A – “Single asset”: something that you can do but most other people cannot for now and will not be able to for a while. For example, a company owns a patent that is necessary for a manufacturing process and that cannot be displaced by alternatives.
  • Type B – “Synergy assets”: a list of things that others know how to do but only you can do them all at the same time. For example, a person who speaks and writes both Chinese and English like a native and understands the cultures of both the East and the West; an analyst who is fluent in computer programming (i.e., hard skills), prolific in writing and skillful in presentation (i.e., soft skills), all at the same time.

To me, differentiation increasingly sounds like an historic relic that has lost its relevance to our time. Today and going forward, both for personal development and when evaluating companies and businesses, moat is what matters.

Differentiation is not a moat.


Some Thoughts on My Investment Philosophy

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For people who invest, their investment actions are usually guided by a philosophy of which investors themselves are consciously or unconsciously aware. It is like asking yourself to list out all items that are in your wallet now; unless you take a pause, open your wallet, one is usually not fully aware of what is in there. Similarly, it is a tall task to give a full answer to one’s investment philosophy. So, this blog piece is not meant to be a complete account, nor final or conclusive. As time goes by, as I age and gain more experience, I will likely abandon some beliefs that are stated below and form some that are new.

I first traded stocks when I was under 20 — I bought an A-share company listed in Shenzhen. Since then, I have invested in A-shares, Hong Kong–listed stocks, U.S. stocks, bonds, funds, real estates and other types of assets and financial contracts.

At Yale University was when I first learned investing in a systemic way. I had the great opportunity to learn directly from the Yale Endowment through its capstone course. I also had the fortune to work with Charles D. Ellis as his head teaching assistant and later to be the translator for his book The Index Revolution from English to Chinese and to publish the book in China. (Charles D. Ellis is the former Chairman of the Yale Endowment.)

Reflecting upon the past 10+ years, practicing investing, broadening investment knowledge, and making mistakes along the way, I always have a few thoughts on my mind. Here, let me list them out, and perhaps, call them my investment philosophy.

  • Invest in Highest-Quality People

The most important thing in investing is people. High-quality people take us no time to manage. Good-quality people take us some time to manage. Low-quality people take far too much of our time to manage, leaving us no time to do other things.

The most important aspect of people is character. In challenging and confusing situations, the highest-quality people still stick to the truth and think independently. They are rational people with an enormous amount of knowledge. They are analytical and tend to make good judgement.

So, invest in the highest-quality management team we can find. Even if a business model is being challenged, even if a business moat is still not deep and wide enough, the highest-quality management team will find a way to deliver a high-quality business and let it thrive.

Also, invest with the highest-quality money manager we can find. Give them the freedom to pursue investment strategies as they see fit. The best manager does not need us to tell them when to invest, where to invest, or how to invest. (Those people are hard to come by, so in most cases we have to make some decisions regarding the “when,” “where” and “how.”)

  • “Few Things are Forever”

De Beers’ slogan “A Diamond is Forever” probably does not apply to investing. In investing, “Few Things are Forever.” When I graduated college in 2010, value investing books (usually with pictures of Warren Buffett printed on their covers) could be seen on the front shelves of almost any bookstore — “value investing” was the only righteous road to investor salvation. Other investment ideas that were enshrined around 2010 include “small-cap premium” and “emerging markets opportunity.”

Looking back over the past decade, from 2010 to 2019, Berkshire Hathaway Inc. compounded at an IRR of 13.1%, underperforming the S&P 500 Index by 0.5% a year. The S&P 500 Value Index returned 12.2% a year, lagging the S&P 500 Growth Index by 2.6% a year. Fewer value investing books are now on the front shelves than 10 years ago.

The notion of “small-cap premium” fared no better. From 2010 to 2019, the S&P 600 Index (small-cap index) compounded at 13.4% a year while the S&P 500 Index (large-cap index) did 13.6% a year. The so-called “small-cap premium” became a 10-year “small-cap discount” of 0.2% a year.

The “emerging markets opportunity” idea suffered the most unexpected and tragic fate. For the past decade, including dividends, the MSCI Emerging Markets Index only earned about 3.7% a year, underperforming the S&P 500 Index by almost 10% a year. Investor could have done about as well if they decided to put their money with an online high-yield savings account!

In investing, things always change. Usually, by the time we arrived at a strong belief about something, such a belief was already obsolete and wrong.

  • Only Play the Game I Can Win

Due to huge financial upsides, active investing attracts some of the world’s smartest people and has become probably the world’s most competitive field. Thousands of well-equipped and well-educated investors and traders are consistently looking for other peoples’ mistakes and looking to profit by exploiting them.

To borrow a quote of an unknown origin: “if you’re not at the table, you’re on the menu.” Same for investing. Unless you know you will win, you will lose.

Therefore, I must have crystal-clear visibility into my own scope of competence. I need to know what is within my reach and what is not, where my capability starts and where it ends. Most importantly, I must expand my scope of competence by active learning (for example, I taught myself coding).

On this point, I am a big believer that “differentiation” does not equal “moat.” “Differentiation” is not a good enough reason for one to win a game. Too many companies talk about their differentiated businesses. Too many managers talk about their differentiated investment approaches. To me, “differentiation” increasingly sounds like a lazy excuse to help not answer some of the most important questions in investing: do you really have a moat? Do you have an unfair advantage that other people for a reasonable amount of time will not be able to replicate or develop?

  • Learn from Mistakes

I believe successes can be attributed to countless factors, but failures usually share some commonalities. The existence of luck in the formation of a success made it inherently difficult for a bystander to study the true drivers behind that success. However, behind failures are usually certain regrettable human actions that are worth our attention. Thus, it is hugely beneficial that I analyze my own investment mistakes, find patterns and try to avoid repeating them in the future.

  • Beware of “Diversification”

Nobel Prize laureate Harry Markowitz once said “diversification is the only free lunch” in investing. Mathematically, that is correct. But diversification, if not done right, is the guaranteed path to mediocrity. Putting too many stocks into a portfolio is a sure way to make the portfolio behave like an index (and below the index, because of fees). If investors aim to replicate an index, diversification is fine; but for investors aiming to outperform an index, diversification has its side effects.


A Decade of Inequality: Has the Booming Stock Market Benefited All?

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My wife and I decided not to go anywhere on New Year’s Day. Instead, we spent the day at home. Bored, I decided to devote my first day of this new decade to examining something interesting of the past decade. One of the most distinctive features of the 2010s was America’s roaring stock market, which now is the longest bull market in history. Including dividends, $1 invested in the S&P 500 Index — a basket of some 500 companies — has turned into $3.6, a whopping 13.6% annualized rate of return. The stunning performance of America’s stock market invites the arrival of a very logical conclusion: over the past decade, American companies and people have fared well.

However, this rosy image does not square with reality. For the 19 years from 1999 to 2018, real median household income in the U.S. has only grown at 0.14% a year; from 2007 to 2018, the pace was only 0.32% a year.

To reconcile the two pictures, it is sensible to re-examine the 2010s with a goal to truly understand what has happened in the stock market. The study needs to be both broader and deeper than “the S&P 500 Index” — broader in the sense that it should cover more than 500 companies, ideally the entire population of listed American companies, and deeper in the sense that the study should offer a bottom-up view of individual companies with detailed texture.

But, is there an indicator that has economic intuition, that is related to the roaring stock market and that is easily measurable on all listed companies?

Market Capitalization! (i.e. a company’s market value)

Market capitalization is measurable and unambiguous — it measures the size of a company. And by measuring changes in market capitalization, we can tell whether a company is growing or not. We can also tell which companies have been growing the fastest and which companies have been shrinking.

The Decade from 2010 to 2019 & Expected Even Distribution of Growth

Over the past 10 years, about 4,600 American companies have been floating on the country’s stock exchanges at some point (a combination of active and de-listed companies). Over a decade’s time, these companies have in aggregate grown by $22.1 trillion and this growth in market capitalization has lifted the U.S. stock market to a valuation of $34.8 trillion by the end of 2019.

A common expectation is that this $22.1 trillion of new gains ought to be relatively evenly distributed. If we distribute companies based on their growth in market capitalization so the top 10% are companies that have grown their market capitalization the most, then we would expect that the top 10% of companies grew by a lot; good companies in the middle also grew handsomely; bad companies got disciplined and lost some of their value; some really bad companies in the bottom 10% were severely punished and lost a lot. That is just how a healthy financial market works.

So, this expectation would lead us to a picture that roughly looks like this:


The Decade From 2010 to 2019 — The Reality

Reality seldom matches expectations, but it is the gap between the two that matters.


As the above chart demonstrates, over the course of the past 10 years and among the 4,600 listed American companies, the top 10% of companies grew by $19.9 trillion, representing over 90% of the $22.1 trillion of total growth. The next 10% of companies (i.e. 80% to 90%) grew by $2.2 trillion, representing slightly under 10% of the total growth; the next 10% of companies grew only by $0.93 trillion.


Counting the top 10 companies that grew their market capitalization the most, all top five winners were technology companies. Berkshire Hathaway came at No.6.


What is even more shocking is this: the top 1% of companies (just 47 companies) grew by $10.2 trillion, which is 4.6x the bottom 90% of companies combined (about 4,100 companies)!

Given the entire U.S. stock market only grew by $22.1 trillion over the past decade, the growth from the top 1% of the companies accounted for almost half of this growth.


From an 80/20 split point of view, the bottom 80% of the companies have added almost no value at all (they actually lost $0.0075 trillion) while all the $22.1 trillion growth went to the top 20% of companies.

A Decade of Inequality

Perhaps, stock markets are no longer a barometer for the economic health of a country. The top 1% of companies dominate the bottom 90% by a ratio of 4.6-to-1. The bottom 80% of companies remained stale for 10 years. Perhaps, something is wrong.

One way to think about this is through a labor angle. In total, the top 1% of companies employ 8.7 million people, which is less than 5% of America’s total working age population (about 200 million). If a person was employed by the top 1% of companies (or even the top 20%), he or she probably has done well this past decade. If a person was with the bottom 80% of companies, on average, his or her company has not grown at all and it is reasonable to believe that his or her salary has not changed much either. And, that is probably one of the driving forces leading to the stagnation of real median household income for the past decade.

The heightened wealth inequality in the society has already split us into the “haves” and the “have nots” and has created a myriad of difficult social and political problems. I believe this study shows that “companies” are also bifurcating into the “haves” and the “have nots.” And we should get ready to deal with the challenges this heightened level of “corporate inequality” can bring upon us.

Has the Booming Stock Market Benefited All?


  • Inequality: if you have not watched it yet, you should — this YouTube video (link) has earned 22 million views.
  • Technology: is technology the “culprit” to blame? Technology usually leads to network effects, which then leads to a business dynamic of winners-take-all. Is there is a downside to what technology is bringing to us, what is it and how do we manage it?
  • Bad companies: the bottom 10% companies only lost $1.5 trillion of market value, which was way less than the common expectation. Is the capital market still functioning properly by not only rewarding the good players but also punishing the bad actors?
  • Investing: since the only obvious winners are the big and growthy companies, is Index Investing (i.e. buying S&P 500 ETF) the only obvious way toward investment success? Or alternatively, because (apparently) fewer smaller listed companies have succeeded in a big way, does it make active investing/stock picking more needed and appealing than ever before?




The S&P United States BMI Index was used as a proxy for the entire U.S. stock market. Foreign-listed American companies are excluded; for multi-share companies, such as Google, only one ticker is represented in the study.

Listed companies’ employee headcounts come from official company filings.



Five Takeaways From 2019

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This is a year-end personal reflection piece. The following five takeaways of mine are inherently backward-looking, but hopefully by examining the past I become more informed going forward.

#1 Think Independently

We giggle when watching lemmings do all kinds of funny things in a group together. But we are not that different — we humans are just as social species as lemmings are. As a general observation, we like people who are like us — a tendency which builds an intellectual echo chamber that confines and reinforces our thinking, making it less independent.

For example, if we frequent the same country club often, our views on many things will eventually converge with people who we hang out with at the club. In an echo chamber, we surrender a part of our intellectual agency in exchange for some mental comfort. In an echo chamber, we feel better and more confident because we know that our views are shared and supported by many people around us (and so, we must be right!).

When was the last time you voluntarily turned on a TV channel that broadcasts a view that is different from yours? When was the last time you proactively initiated conversations with people with different views?

To think independently, we should avoid forming strong opinions or making quick decisions because “my friends also like that idea.” Also, we should listen to people who think differently rather than cherry pick what goes into our ears.

#2 Think Scientifically

History makes quips from time to time. In 1793, England made a request to China to establish commercial relations. Emperor Qianlong wrote a letter in response. To quote the letter: “… our Celestial Empire possesses all things in prolific abundance and lacks no product within its own borders. There was therefore no need to import the manufactures of outside barbarians in exchange for our own produce.” We all know what happened in the following century between England and China.

To think scientifically means to develop thoughts on a foundation of objective facts rather than a foundation of subjective feelings and unfounded biases. Let facts lead us to conclusions, not the other way around. Unfortunately, people often fall in love with an idea first then find data to support that idea.

Thinking scientifically also requires us to analyze and learn from our own mistakes. Be courageous in recognizing the past; do not find excuses for our past mistakes; recognize we were wrong on them; learn from these mistakes so we can improve going forward. For the present, appoint a devil’s advocate to challenge our logic. It is better to appoint one early rather than wait until someone must speak out on their disagreements (usually this happens too late, and the damage is done).

To think scientifically is to self-examine our own thinking process — let me call it “to think about thinking.” One way to do it is to identify inconsistencies by recognizing incommensurate elements. For example, do we say A but do B? Did we say A yesterday but say B today? Are there double standards in our doings and sayings? Once inconsistencies are identified, we should grasp them firmly, understand why they are there and use the rationalization process that follows to refine our prior thoughts and beliefs so our thoughts can be reconciled, and our belief system becomes coherent.

#3 Technology/Data, A Secular Trend

Upon high school graduation in 2006, I almost chose computer science as my college major but I did not. These were my beliefs at that time: technology/data and everything it brought with were fads. Because they were fads, like other fashion trends, soon they would begin to wane. Therefore, I did not major in computer science.

Alas, I could not have been more wrong. The year 2006 turned out to be the first inning of cloud technology and first or second inning of Chinese Internet saga: Amazon AWS was launched in 2006; Uber was founded in 2009; WeChat was released in 2011.

Some two years after college graduation, the reality slapped my face so hard that I finally woke up. I came to the realization that if I do not know how to code or how to do data analytics, I might not have a job when I turn 30! That jolt brought me to night-school and various MOOCs to learn computer programming. Today, I am extremely fluent in financial data analytics and coding. I have coded multiple financial programs, each with thousands of lines of codes.

Largely due to new technologies, the world is evolving at an accelerated page. In the old days, being 10 or 20 years behind means you were using a slightly older radio than your neighbors — there was no serious repercussion for being an old-timer. Today, being 10 or 20 years behind means you are writing checks and your neighbors were scanning QR Codes on Alipay; you are hailing taxi with open arms and your friends are clicking Uber/Lyft with their fingertips. Many places have stopped accepting cash and many cities do not have conventional taxis anymore. As new technologies continue to emerge and the time spectrum continue to shrink, we can hardly afford to stand still and not evolve.

#4 Interpersonal Skills Should Not Be De-emphasized

Despite new technologies, most businesses remain people businesses. I believe it is still a valuable skill if one can read people’s actions and words — to read between the lines, see between the moments, and extract raw insights that lie beneath a polished surface. Those sorts of insights into people usually contain predictive value that is otherwise hard to come by.

To illustrate, I believe for a person to be successful in what she does, passion is more important than pride, and pride is more important than “just a job.” (“Passion > Pride > ‘Just A Job’”) To be a true out-performer, one must have passion, so she can put in extra hours in what she does, take risks responsibly, think creatively, be a trailblazer, and eventually make breakthroughs. But these people are rare. Many people are only in the second level — they take pride in what they do. They deliver quality work with quality execution. They are proud of their current positions and for this reason, they are less likely to take risks and trail blaze to terra incognita. Their reputation is associated with their present-day achievements, and they cannot afford to risk that. Trying something new is just too risky for them. “Just a job” type people have probably the lowest chance to be hugely successful down the road. They deliver minimum quality work and they do not see a deep connection between themselves and what they do.

#5 Lean Into The Future

Consider these facts:

  • Telephone was invented in 1876 but it took more than 100 years for landlines to reach a saturation in the U.S. *
  • The personal computer was invented in the 1970s. In just 40 years, almost every American has multiple PCs, at home and at their office.
  • Facebook was launched in 2004. Almost all Americans (and many millions internationally) are on Facebook today.
  • WeChat was released in 2011. Almost all Chinese people are on WeChat and few are using text message anymore.
  • About 90% of the world’s data was generated over the last two years! ^

The world is evolving faster and faster. Do not let our old habits confine what we can do today. Do not fall back into our old comfort zone and get defensive when new things emerge (especially when we do not understand them).

Think outside the box — and make sure you are in a big box first! If the box you are in is tiny, thinking out of the box will not do much for you.

To lean into the future, I encourage us to think along a few dimensions.

  • New things versus old things: do not condemn new things simply because we do not understand them. Download new apps. Try new food (well, I have to say that Beyond Meat does not taste that great). Learn new ideas. Try them out and have fun.
  • Younger generation versus older generation: invest in the young can be highly rewarding. See my previous piece.
  • “We” versus “They”: globalization and all the changes it produced creates in many people certain feelings of tribal identities. When we take the facts out, take the moral judgements out, the remaining story of “We” versus “They” feels very true. It gives people feelings of insecurity. However, it is sensible to remind ourselves that not all the “We” people are good and trustworthy people; similarly, not all the “They” people are bad and suspicious people. Learn a new language, travel to a foreign place, and make new friends with people of different backgrounds. Hopefully we will all come to discover that people are different, but not as different as we thought. The best way to eliminate “We vs They” tribal prejudice is contact. Few prejudice and biases can withstand contact.

Lastly, let me borrow a few lines from Bob Dylan’s famous song The Times They Are a-Changin’:

…and don’t criticize what you can’t understand…
… The order is rapidly fadin’, and the first one now will later be last…