回答博友提问

Answering blog readers' questions

> By Duan Yongping · his NetEase blog (nteswjq.blog.163.com, now closed; read from web archives) · 2010-09-21 · [Original link](http://nteswjq.blog.163.com/blog/static/126998120108211499104/) ([archived](https://web.archive.org/web/20100925064233/http://nteswjq.blog.163.com:80/blog/static/126998120108211499104/))

[Translator's note: this post is a Q&A collection compiled by the netizen 茶水铺 ("Chashuipu") from the comment section of Duan Yongping's blog, first posted on the i美股 (imeigu) forum; Duan reposted it on his own blog on 2010-09-21. Only Duan Yongping's answers are translated in full; readers' questions are reduced to short prompts. The original comments have not been found. Stock-ticker tags inserted by the forum page, the compiler's title and the forum's closing notes are not his words and are not included.]

http://bbs.imeigu.com/thread-4955-1-1.html

**Duan Yongping (note when reposting):** I saw this on imeigu and felt it was pretty much to my taste, so I'm reposting it. When I have time I'll make some edits myself, and if I have anything to add I'll add it myself.

Thanks to Chashuipu and Mo Qing.

> Q (reader, condensed): Books about investing?

**Duan Yongping:** Right, about books on how to invest: I think the most important book is Buffett's letters to shareholders, and next comes what Buffett says in general. If you truly understand them, you can begin. Whoever thinks Buffett is outdated should be careful when investing, otherwise the one who's outdated will very soon be himself. Old Buffett has already said everything that needs to be said; what anyone else says doesn't matter. Whether you can understand it depends entirely on your own insight and fortune.

> Q (reader, condensed): How often to act?

**Duan Yongping:** The general rule of investing is: the more often you act, the less you make or the more you lose.

> Q (reader, condensed): How did you value Vanke back then? How do you examine a company? What do you think of China Merchants Bank? Of "there are no sunset industries"?

**Duan Yongping:** 3. My so-called valuations are all rough estimates. When I bought Vanke its market value was only a bit over 10 billion, and I thought it was worth more than that no matter what, so I casually gave it 50 billion. Heh, the only thing certain at the time was that a bit over 10 billion was a bit too cheap. If someone had sold me Vanke for a bit over 10 billion, I'd have been very happy to buy it, so I was very happy to buy a part of it too.

4. There's no specific method. Generally speaking, I'm not very likely to be interested in a company I know nothing about, unless something attracts me. The way to understand each company may be different. I generally use elimination: when I find something I don't like, I leave, so in the end very few targets remain. Companies I have no way of understanding I just don't touch.

5. I don't understand banking, so I only bought Wells Fargo, which Buffett understands. If he sells, I'll sell; if he doesn't sell, I might still sell, if I have a target I understand better and that's cheaper.

6. I've never seen her say that. If she did, maybe someone thought air conditioners were a sunset industry? Her answer was excellent! We don't have a deep feel for sunset industries, because we've been fairly lucky and have always been in sunrise industries, heh.

> Q (reader, condensed): Can you recommend a few books on investing?

**Duan Yongping:** The only book I've read is Buffett's letters to shareholders, and I don't think I've even finished it. The principles come down to the same thing however you put them; once you understand, that's enough. I've flipped through some other books. I think if you can understand Buffett, it doesn't matter if you don't read other books; if you can't understand Buffett, it doesn't matter if you don't read other books either.

> Q (reader, condensed): What makes you say BBK can compare with Samsung and Sony?

**Duan Yongping:** Boss Tang [the TV show 波士堂] was a long time ago; I don't remember what I said. Generally, my main standard for judging a company is how healthy it is; everything else is relatively secondary. I think BBK's health now may be equal to, or even better than, Samsung's or Sony's back then. In 50 or 100 years, if the companies are all still around, we can compare again. The most important thing is that our company is still around in 50 or 100 years.

> Q (reader, condensed): When there's no opportunity with a big margin of safety, should you just sit in cash and wait?

**Duan Yongping:** Heh, if there were lots of opportunities they wouldn't be opportunities. Staying in cash is a very hard thing. Buffett's experience is that it's very easy to make mistakes when you have money and nothing to buy. Staying in cash is always better than making a mistake.

> Q (reader, condensed): Does debt have anything to do with a company's value? Which kind of profit is better to look at?

**Duan Yongping:** If I'm only talking about cash, I mean net cash, that is, after subtracting debt.

I don't quite understand your second question. I generally look at cash flow and profit. Some companies' profits are pretty fake, and you can see it from the cash flow.

When you have time, read Buffett's letters to shareholders; it's all in there. I can't possibly explain it better than he does.

> Q (reader, condensed): Is the net cash you mean just cash and deposits?

**Duan Yongping:** It should also include some things that can be turned into cash in the short term, bonds for example.

> Q (reader, condensed): What if you don't know when to sell?

**Duan Yongping:** I don't know when it's best to sell either. Anyway, you can sell when it's no longer cheap, if your money has a better place to go. By the way, personally I think bottom-fishing is a speculative idea (no praise or criticism meant); value investors shouldn't try to buy at the bottom. Bottom-fishing is watching other people, while value investors just act when something is cheap enough (no matter what others think).

For me, if I bottom-fish a stock, I often make less, because when it rebounds I often can't bring myself to buy, so it's easy to miss the chance. The most typical example is when we bought Vanke: we happened to buy right at the bottom. Frustrating (actually not that frustrating, it's always better than losing money): we bought far less than we'd originally planned.

> Q (reader, condensed): You could still buy after hitting the bottom, couldn't you?

**Duan Yongping:** You're right! But people aren't saints; it's hard not to be affected.

> Q (reader, condensed): What if an undervalued stock doesn't rise for three to five years?

**Duan Yongping:** Actually, nobody knows how long the market should take to reflect a company's value. Sometimes it's quick, sometimes it's slow. It's indeed rare for an undervalued stock's price not to rise for 3–5 years, especially after a bull market, but that also doesn't mean undervalued stocks will definitely rise. There's another possibility called a value trap: it looks valuable on the books but actually there's a lot of water in it. It's easy to understand why that kind doesn't rise.

> Q (reader, condensed): When the market as a whole isn't cheap and you come across a reasonably priced stock, buy or wait?

**Duan Yongping:** Heh, you don't have to buy a reasonably priced stock. My view is that it's only an opportunity when the price isn't very reasonable. Sometimes the wait can be very uncomfortable, especially in a big bull market. Buffett has said the hardest thing is to do nothing. Heh, if even he finds it hard, it's perfectly normal for us to find it hard.

> Q (reader, condensed): Do you read financial reports closely? What mistakes have you made? How do you learn? Why don't you like "innovation"? What's attractive about Burlington Northern? How do you deal with exchange-rate risk?

**Duan Yongping:** 1. I don't read financial reports very often (so I'm not as hard-working as Buffett).

The numbers I care about are a few: debt, net cash, cash flow, how reasonable the expenses are, real profit, and net assets excluding goodwill. I think that's it.

I don't know what the "three main statements" are.

I mainly use financial reports to rule companies out; that is, if after reading the report I don't like it or can't understand it, I stop looking.

The reasons for deciding to invest are usually other factors; UHAL was an exception.

There are also ones I invested in without reading the report, such as BRKA. Last year I bought some BRKA and had it made into a certificate just to get Buffett to sign it, heh. As it turns out, so far it has already earned me the price of a few meals.

I rarely attend shareholder meetings, but I go to Omaha almost every year (last year I didn't go because of the flu).

2. The mistakes I've made over the years are just those few: doing things I didn't really understand, borrowing money, and shorting. All my mistakes have to do with these.

From now on I won't short or borrow again, but there may still be chances to do things I think I understand but still haven't figured out. So my mistake rate has dropped sharply.

The hardest thing is to do nothing.

When you have lots of cash in hand, it's easy to understand why that's said. Buffett said the time he's most likely to make mistakes is when he has lots of cash in hand. Me too.

3. Probably chatting and going online? Sometimes I read a bit too, but I rarely finish a book.

4. I've never said I don't like companies innovating!!!

But I don't like companies innovating blindly.

It's hard for any company to survive without innovation, but innovation means innovation premised on being user-oriented, not being different for the sake of being different.

Our company calls this differentiation, that is, things users need that others haven't provided yet. Of course, what users need and everyone already provides, we absolutely mustn't lack.

Blind innovation is dangerous, while innovation premised on being consumer-oriented is an important foundation for a company's survival.

5. I think Buffett spending money to buy BNI is better than putting the money in long-term Treasury bonds. BNI has very good cash flow, some growth and large tracts of land; in the long run its annual return should be able to exceed 8%.

6. I never think about exchange-rate risk. If I think my investment may not even cover exchange-rate risk, I'll choose not to invest.

> Q (reader, condensed): What is BBK's core competitiveness?

**Duan Yongping:** Our corporate culture!

Heh, I answered this way more than 10 years ago, and now some people may have started to understand.

> Q (reader, condensed): Buffett's words are easy to understand but hard to put into practice, right?

**Duan Yongping:** Heh, you already understand it very well.

Let me correct a slip of the pen: simple but not easy!

A little anecdote: Buffett may have learned this line from me. The first time I had dinner with him I said it once, and he repeated it with a smile. I'd never seen him say it before; after that I've seen him say it twice, once in a CCTV interview.

No matter who said it, understanding it is big progress.

> Q (reader, condensed): Are you moving toward diversification now?

**Duan Yongping:** Each of our business units is highly independent and specialized, and very focused on the areas it's good at.

We won't diversify for the sake of diversifying.

> Q (reader, condensed): "Simple but not easy" is something Buffett said, isn't it?

**Duan Yongping:** If you don't count fees, what you invest in has nothing to do with how much money you have.

Nothing to do with it!!!

But it does have to do with energy; that is, if you have too much money you may not have enough time to find enough good stocks. With too little money you don't have enough to spend on researching companies.

Many people feel they can't learn from Buffett because Buffett has too much money, but I'm basically certain that people who say this don't understand Buffett. Actually, I read both of these people's stuff, so I think they're still pretty good.

I'd probably choose the one I think is safest.

I don't think it's quite right for me to compare stocks in public, and my views aren't necessarily right either. I can be a good coach in investing, but I can't play in the match for you.

> Q (reader, condensed): What does your spending on researching companies cover?

**Duan Yongping:** For example visiting the company, visiting the market, understanding the products (including competitors), and so on. If you want to be able to hold a stock for the long term, you must fully understand the company you hold.

> Q (reader, condensed): Why invest in US stocks and not A-shares? Do you consider RMB appreciation?

**Duan Yongping:** Over the very long term (say 10 years), I don't think the RMB will appreciate.

My investing isn't limited to any one market; it mainly depends on whether I have a chance to understand.

If A-shares have stocks that are cheap and that I understand, I can buy them too. But right now I don't really understand A-shares.

> Q (reader, condensed): When you can't see clearly, should you stop?

**Duan Yongping:** At any time, you shouldn't buy a company you don't understand. So you're right! But I think the rain and snow you're talking about still seems to be about the overall market?

A crisis comes roughly every 5–8 years. I hope that next time it comes you remember to come here and take a look, then wipe off the cold sweat, and then put in all the money you can put in. Whatever you do, don't borrow, because nobody knows just how crazy the market can get once it goes crazy.

> Q (reader, condensed): Why did Berkshire underperform the market in 2009? Is investing in utility stocks a trend?

**Duan Yongping:** Being below the market in a given year is very normal.

Value investing actually shouldn't care whether others are interested in the short term; in the long run, if you think it's cheap, that's enough.

> Q (reader, condensed): Berkshire compares its book value with the S&P, doesn't it?

**Duan Yongping:** The so-called value means its intrinsic value. The value in Marx's "price fluctuates up and down around value" also means intrinsic value.

> Q (reader, condensed): How does Buffett judge that he bought wrong? Isn't a 10% drop just a chance to buy more?

**Duan Yongping:** I don't know how Old Buffett judges it, but I can say how I generally judge it. Generally, when I buy a stock there must be a reason to buy it, and I also have to see the negatives. When the reason to buy disappears, or the important negatives grow to the point I can't accept, I leave. Being too expensive sometimes becomes a reason to leave.

If all the reasons stay the same and only the price drops 10%, then of course it's a good opportunity. But if the reasons change drastically, it may be time to leave.

> Q (reader, condensed): Is Yahoo at 20 still cheap?

**Duan Yongping:** You want to buy on the way up. Actually whether something is a bargain should be decided by each person according to their own opportunity cost. Personally I think Yahoo at 20 is acceptable, but I might not buy anymore. Of course, if you really do have spare money and no better target, you can still consider it. I already have plenty of Yahoo, but if there's a chance of it getting cheaper I'll add some more.

> Q (reader, condensed): Li Ka-shing's "take 9 when you could take 10" means the same thing, right?

**Duan Yongping:** Yes. I quite like Li Ka-shing's business sense.

> Q (reader, condensed): Is this commercial real-estate stock attractive to you?

**Duan Yongping:** If you can guarantee there are no fake accounts in it, the net assets don't depreciate, profits don't fall and the money won't be misused, then this price isn't expensive. Heh, these are exactly the places where it's not easy to understand a company.

Of course, sometimes understanding may not be so complicated.

I remember when we bought Vanke, someone asked me what if Vanke cooked its books. I said that, from the Wang Shi I know, he's definitely not someone who would shut himself in a room with the finance people to cook up fake accounts to fool shareholders. Actually I didn't know Wang Shi well back then, and I don't really know him well now either; it was just intuition.

> Q (reader, condensed): Where do your ideas of "平常心" (a normal mind) and "本分" (doing what's right and proper) come from?

**Duan Yongping:** Probably from experience and lessons, so they have to do with family, society and one's own insight. I'll write about it when I have time.

> Q (reader, condensed): How did you see Skyworth clearly enough to dare to buy?

**Duan Yongping:** I don't know whose product quality you usually compliment.

When we bought Skyworth, its market value was only a bit over a billion Hong Kong dollars; their building was almost worth that much. Skyworth is the healthiest company in the TV industry; it doesn't tend to do reckless things. In the long run, if even they can't survive, then this industry will no longer exist, full stop.

I don't agree with what you said about which few aspects you should look at when investing in a company.

I've always thought there's no formula here.

Investing looks at assets (real net assets), or assets discounted to today (same as above). Every factor may have an effect, and the one with the biggest effect is often the worst factor.

For what matters in a company, you can refer to McKinsey's 7S; I like using that tool to look at companies.

> Q (reader, condensed): How do you spot a company faking it from the cash flow?

**Duan Yongping:** What's fake can't become real; time will tell you. But there doesn't seem to be a formula, otherwise nobody could fake it. Still, understanding its products, market and competitors, and being familiar with financial statements, may all help you spot possible fakery.

> Q (reader, condensed): Do you refer to the P/E ratio when buying stocks?

**Duan Yongping:** P/E is a company's historical data and has reference value, but P/E isn't enough to understand a whole company.

> Q (reader, condensed): How do you judge that a company has good growth?

**Duan Yongping:** I don't know how to judge a company's growth, unless I understand their business very well.

> Q (reader, condensed): Can you analyze Giant Interactive's investment value?

**Duan Yongping:** GA has a bit under 4 dollars of cash per share, now earns a bit under 60 cents a year, and the share price is around 7.50. If over the next 6 to 7 years GA can maintain its current profit and cash flow, you'd basically get your money back.

1. I can't know whether GA can maintain its current profit and cash flow over the next 6–7 years, but I think the chance it can is high (the chance of a decline isn't big).

2. If in the next 6–7 years GA can put out one or two better games, GA's revenue will have a chance to grow, and shareholders buying at the current price will get their money back sooner.

All in all, Giant has had plenty of experience and lessons these past few years, and Shi Yuzhu has stayed fairly focused, so GA's downside will be very limited.

We have some GA too, but it's not a big position.

> Q (reader, condensed): What did you judge wrong in the 2008 crisis?

**Duan Yongping:** A company's value won't change much because of a crisis, but its price will. So a crisis is often a chance to add, because many good companies' prices fall below their value (by a lot).

Selling in time, like bottom-fishing, is actually a speculative idea.

> Q (reader, condensed): What do you think of market research?

**Duan Yongping:** Market research firms should be neutral; whether there's bias depends on their skill.

If you leave designing the questionnaire entirely to the research firm, the conclusions easily come out biased.

My view is that market research results are for verifying your intuition. If your intuition is already very clear, you actually don't need market research. But when you're not sure, market research can sometimes help a lot.

> Q (reader, condensed): What if you're fully invested and it falls?

**Duan Yongping:** My view has always been that once I'm fully invested, it has nothing to do with me.

Borrowing is dangerous; nobody knows how crazy the market really gets (downward or upward).

> Q (reader, condensed): If you can handle it, is investing with borrowed money OK?

**Duan Yongping:** I remember Buffett saying something like this:

If you don't understand investing, you shouldn't borrow. If you do understand investing, you don't need to borrow. You'll have money sooner or later anyway.

> Q (reader, condensed): What do you think of companies like Apple that innovate first?

**Duan Yongping:** Heh, Apple is also a model of "daring to be behind the world" [敢为天下后].

Actually that's exactly what I mean by "daring to be behind the world"!

Being behind the world without innovation is certain death.

But I don't own Apple; it's one of the big opportunities I've missed.

> Q (reader, condensed): How are the BBK and OPPO brands positioned?

**Duan Yongping:** Heh, I'm just an adviser at most; how would I be the one to position them?

These are two different companies, each with its own positioning.

The key is that their cultures have things in common.

There are so many brands on the market; one more competitor is no big deal.

> Q (reader, condensed): The great way is simple; whether the principle can be used depends on each person, right?

**Duan Yongping:** Heh, God helps only those who help themselves. It's enough that some people understand.

> Q (reader, condensed): Too bad many people want to rely on God!

**Duan Yongping:** That reminds me of something I saw somewhere, I don't know where:

One day, a man went to a Guanyin temple to pray to the bodhisattva.

When he entered the temple he found someone already praying there.

He suddenly realized that person was the bodhisattva Guanyin herself, so he asked in alarm: We all pray to Guanyin; how come you too......?

Guanyin answered: Asking others is not as good as asking yourself.

> Q (reader, condensed): Does "doing the right thing" mean strategy and "doing things right" mean execution?

**Duan Yongping:** The right thing also includes principles. Calling it strategy is acceptable too, but it's a bit insufficient.

There's a big flaw in our culture: valuing profit over principle. Anything goes as long as there's money to be made. When the whole culture can understand that some money must not be made, the whole society will make great progress. It may take more than 100 years; I hope it doesn't take ten thousand.

> Q (reader, condensed): "Only 12 investment chances in a lifetime": is that what it means?

**Duan Yongping:** Exactly.

He was saying this many years ago, and it seems very few people took it in.

Every time an opportunity comes, a crowd of people say Buffett is outdated, and then after a while another crowd comes out and says Old Buffett was right after all. Heh, it's happened many times, including this crisis.

> Q (reader, condensed): Is listing a company the right thing? How does BBK view listing?

**Duan Yongping:** The reason the books mention only listed companies may be that data on unlisted companies can't be obtained? Also, the biggest flaw in these two books (my view) is actually that they judge companies by market value rather than by real shareholder returns.

Whether a company lists isn't a matter of right or wrong, only of whether it's suitable. Not every company is better off listed, but some companies really do need to list to keep going.

Our company doesn't seem to have plans to list within 3–5 years, but we don't rule out any possibility in the future. As long as it helps the company's long-term development, listing can be considered too.

> Q (reader, condensed): Does "re-evaluate, don't rush to sell" mean looking at buy and sell points dynamically?

**Duan Yongping:** When I buy a stock I usually have a basic judgment, that is, at least how much it's worth (a bit like Buffett's assessment of PetroChina). Once it gets there, I should look at how much it really ought to be worth.

Over these years I've had experience and lessons. In the past, each time NetEase reached a target I seriously re-evaluated it once, otherwise I wouldn't have held it for more than 8 years, exactly the length of the War of Resistance. With Vanke, once it reached the base price I sold without re-evaluating, and made a lot less.

When a stock falls, that's also a push to re-evaluate the stocks you hold and see whether the reasons for buying have changed (for example, I once bought UNG; after a serious look I found I'd bought wrong and cut the position. Otherwise, holding it until today would have lost tens of millions more).

Rationally speaking, evaluating a company's investment value shouldn't be related to the share price rising or falling, but people often need some pressure.

> Q (reader, condensed): (A reader describes how they picked Gree.)

**Duan Yongping:** "Eat well in the morning, go to bed early at night." Heh, that's corporate culture.

If you can see the difference between companies from this, you're already an expert.

I remember about 10 years ago a friend at China Merchants Bank talked to me about Gree air conditioners and said he felt they were a lot like our company in many ways. Heh, I think they do many things better than we do; of course we do all right too.

> Q (reader, condensed): You sold Vanke once it hit the target price; how could you hold NetEase so long?

**Duan Yongping:** Heh, you can only hold on if you truly understand what you've invested in.

My understanding of Vanke was far below my understanding of NetEase, so it's reasonable that I made less.

> Q (reader, condensed): I can't read financial statements; any book to recommend?

**Duan Yongping:** I'm not very good at this either.

Still, you do need to be able to read ordinary statements. Almost any book on finance should do, I suppose?

> Q (reader, condensed): Why did Happy Farm succeed?

**Duan Yongping:** I know about vegetable-stealing [the Happy Farm game] but haven't played it. Generally speaking there's only one reason a game succeeds: it's fun. Most people actually have some time to kill, and games are the best place for it. Of course, being addicted to games is bad, but being addicted to anything is bad. I think when kids are addicted to games it's generally the parents' responsibility; at the least you could say the parents' real care for them may not be enough.

Our kids play games too; on weekends and holidays they generally get an hour of game time a day. The little ones treasure this chance very much, so it's also easier to "manage".

> Q (reader, condensed): Can you pass on some knowledge about marketing?

**Duan Yongping:** Marketing is very simple: it's selling good things.

In the long run, nobody can sell bad things well.

The claim that I'm a marketing master is purely a misunderstanding. The world is full of self-styled marketing masters, but I don't consider myself one of them.

By the way, most of the "marketing masters" I've met focus too much on marketing.

Heh, this "marketing master" of yours hasn't known what our company's marketing people are doing for nearly 10 years; you don't see many "masters" like that, do you?

[Translator's note: the compilation lists no question here; this answer follows straight on from the previous one.]

**Duan Yongping:** Heh, China has plenty of people more capable than me. Still, everyone has something to learn from. Our experience may sometimes be of some use.

> Q (reader, condensed): For a company like Moutai whose intangible assets are valuable, would you pay a higher price?

[Translator's note: the compilation does not separate speakers in this passage (three sentences); the speaker cannot be confirmed, so it is not translated.]

[Translator's note: a quotation block follows here in the compilation, probably a reader quoting Buffett; it is not Duan Yongping's words and is not translated.]

**Duan Yongping:** If cash is useless, it's waste. If cash is misused, it's a crime.

> Q (reader, condensed): As your investing experience has grown, where have you improved over before?

**Duan Yongping:** Heh, my state of mind is much better, I'm not afraid of missing opportunities, and most important is not making big mistakes.

Let me add a few thoughts on university students starting businesses.

First, having only an ideal (of starting a business) isn't enough to go and start one.

Second, whether you can start a business doesn't seem directly related to whether you're a university student.

Generally (my personal view, unverified), the higher your education, the harder it is to start a business, probably because of opportunity cost.

There are many dedicated courses on how to start a business, and now there are things like startup factories too. Heh, most of the teachers of these courses are people who have never started a business. Theory is fine to talk about, but in practice you still have to go through a lot of grinding to really understand. If a startup factory is run by people who have never started a business, that's even a bit more profound.

My impression is that two kinds of people seem to have a higher chance of succeeding at starting a business. One is people with no other way to go: because they have no way back, they'll be very hard-working and focused, so their chances are bigger, like me.

The other is people who see the road, that is, who have a strong ideal and certain ideas from the start (often ideas that have been validated in some way), like Bill Gates.

Of course there are also examples of people who started a business for the sake of it and succeeded, like the two founders of HP (mentioned in Built to Last).

All in all, there doesn't seem to be a formula for starting a business either. The only certainty is that the chance of failure is very high. So unless you really have sustainable, intense passion (including an unbeatable spirit) or you really have no other way to go, think it over some more.

> Q (reader, condensed): So would you count as someone both capable and lucky?

**Duan Yongping:** You could say that.

Actually everyone has their own abilities; underestimating or overestimating yourself both easily cause problems.

I see myself fairly objectively.

> Q (reader, condensed): What plans are there for the BBK brand?

**Duan Yongping:** I don't know which 4 product lines you mean. We have loads of product lines.

We have 3 companies in consumer electronics:

The education electronics company's main products are learning machines, reading pens, language repeaters, dictionaries and so on. The communications company started with telephones, and now does very well with mobile phones too. AV started with VCDs and has just entered "home appliances". OPPO is actually a global brand; what people know best now is probably the phones and MP3/MP4 players, and what has some influence in the US is OPPO's Blu-ray DVD players. OPPO's products may be one of the brands with the best reputation in consumer electronics in Europe and America so far (its name recognition is still far from enough). That seems to be a first for a Chinese product, doesn't it? Anyone who doesn't believe it can look it up online; it's all in English.

We have no plans at all to maximize brand value; I don't even understand what maximizing brand value means. What we care most about is our users' experience and how to improve it; what we pursue is how to offer consumers things that are useful and that they like. If we can keep doing this, maybe within 20–30 years we can also come out with a product like the iPhone [Translator's note: the original reads "iphong".] or the Wii.

> Q (reader, condensed): When a stock you like falls to an absolute undervaluation, buy all at once or in batches?

**Duan Yongping:** That depends on how much money you have.

If my money isn't so much that it would seriously affect the price, and I think it really is very low, I'll go in all at once. I always feel it's better not to be too greedy.

> Q (reader, condensed): Is OPPO's technology mainly integration or mainly R&D?

**Duan Yongping:** Heh, whatever you lack is what matters.

We have quite a lot of good technology, and our R&D investment is quite large. Forgive me for not being able to say too much here.

> Q (reader, condensed): How's the return on hiring a Korean actress as spokesperson?

**Duan Yongping:** "胡动" [a reader's coinage] is a good concept.

Heh, I don't know about input and output. But I do know our company has always been very rational about advertising and never does reckless things.

[Translator's note: the compilation lists no question here; this answer follows straight on from the previous one.]

**Duan Yongping:** I didn't know the P/E at the time, and didn't know what P/B was. All I thought about was the idea of so-called future cash flow (I don't think I even did the discounting). Only by being able to understand the company and the business can you do this.

As I said long ago, selling a stock has nothing to do with your cost, so any blog friend who wants to ask how I could hold NetEase to more than 100 times, please refer to this.

> Q (reader, condensed): What do you think of Chinese entrepreneurs' moral problems and social injustice?

**Duan Yongping:** A considerable share of Chinese entrepreneurs are very good! I know many very good entrepreneurs.

American entrepreneurs have many moral problems too; I hardly know where to begin.

If I must say something, I think each of us should reflect on ourselves; it's a problem of culture.

I remember around 1975 there was a campaign against using back doors [走后门, getting things done through connections]. I found that nobody didn't oppose using back doors, and nobody who had a back door didn't use it.

It's a bit like now: everyone opposes "others" abusing power... and so on.

Unfairness is the same. If each of us hopes to be the one who benefits from the unfairness, how can it change?

> Q (reader, condensed): Whenever we run into trouble we want to use a back door; that has to do with culture, right?

**Duan Yongping:** Heh, there's a big crisis of trust in China now. For good companies, this is actually an opportunity.

> Q (reader, condensed): How do you manage to buy a stock worth 10 yuan for 2 or 5? Why not buy at 6?

**Duan Yongping:** I might buy at 6 too. My general target is to buy stocks I think are undervalued by 50% or more.

> Q (reader, condensed): Is the value you mean net worth or market value at some point in time?

**Duan Yongping:** Worth should be the present net worth plus the discounted sum of future profits. [Translator's note: the compilation reads 值 ("worth") here, and a later reader quoting this sentence has 价值 ("value"); the compiler probably dropped a character. Kept as is.]

> Q (reader, condensed): After you buy and the price keeps falling, how do you manage your mood?

**Duan Yongping:** When I run into this (especially in a big fall), I generally take another full, careful look to see whether I've got something wrong somewhere; if I confirm there's no problem, I leave it alone.

Moods are hard to explain; at first I was nervous too. Looking back, nervousness generally comes from not understanding. When you really understand what you've invested in, a fall often makes me feel happy or unmoved.

> Q (reader, condensed): Sell when it recovers to fair value, or wait until it's overvalued?

**Duan Yongping:** If you think it's overvalued, of course you can sell!

But deciding that it's overvalued isn't easy.

> Q (reader, condensed): Has the home appliances project run into setbacks?

**Duan Yongping:** When did we ever say "don't dare to be first in the world"?

We "dare to be behind the world" and can also "dare to be first in the world"!

Heh, everything easily gets distorted. Some people even say we're "content to be behind the world" [甘为天下后]; the meaning of that is very different.

There are many classic examples of "daring to be behind the world", like Apple's iPod and iPhone and almost all of Microsoft's products; think about it carefully and you'll understand.

The main difficulty for home appliances now is time; that is, the current difficulties can be solved after a period of effort. Besides, which of our products didn't have setbacks of one kind or another when it first entered? In 3 years you may see a completely different conclusion, heh, at least I hope so.

> Q (reader, condensed): How many years of future profits do you discount? Should intangible assets get a premium?

**Duan Yongping:** First, this is just a way of thinking, not an algorithm. Anyway, I've never calculated it, and I don't think anyone can.

Because it's a way of thinking, how many years doesn't really matter. Because of discounting, the difference between 20 years and 30 years isn't as big as you'd imagine.

Intangible assets can be discounted too, so I don't suggest considering intangible assets separately, because they're already included in the company's earning power.

> Q (reader, condensed): So you don't calculate discounted future profits and just go by feel?

**Duan Yongping:** It's not that I don't calculate; it's that I know it can't be calculated precisely. It's only cheap if a rough calculation already makes it feel cheap. Here's an example of how I calculated when I bought GE: when GE fell below 10 dollars (its low broke 6), I thought GE could earn nearly two dollars in good times; as long as the economy returned to normal, how could it not earn a dollar-something? Since GE's rating would still be very high in the long run, assume it could earn 1.5 and give it a P/E of 15, and wouldn't that be over 20? That's how I thought at the time. Simple, isn't it?

Actually behind it there's something not so simple: that I could firmly believe GE was a good company (a great company), and good companies have a very high chance of coming back after making mistakes.

There are plenty of people better at calculating than me, but knowing how to firmly believe really isn't easy.

> Q (reader, condensed): (A new employee complains about being reassigned to a different department after campus recruitment.)

**Duan Yongping:** Heh, do you really want me to ignore it?

Someone is always dissatisfied with assignments, but why was there no discussion at all? I think it may be a problem of method.

If it were me, I'd first discuss with everyone, then assign according to the individual abilities each department needs, and where it couldn't be decided, draw lots; that might be fairer. Of course, fairness is often not a result but a process. That is, everyone may feel the result is "unfair", but as long as the decision process is fair, that's fine.

> Q (reader, condensed): You can find so many undervalued stocks: is it luck or do you have a team?

**Duan Yongping:** I've never deliberately gone looking. As long as you pay attention normally, over time there will be opportunities. When an opportunity really comes, most people may miss it; I think you can only seize it through what you've built up over time.

> Q (reader, condensed): Do you have more worries or more happiness?

**Duan Yongping:** He who takes no thought for the distant future will have worries close at hand; there are always some worries. But overall, I'm still quite happy.

> Q (reader, condensed): How do you manage accounts receivable?

**Duan Yongping:** Our condition was probably that the other side open an irrevocable letter of credit. The other side had obviously come prepared and wasn't interested in our condition.

I don't know how others manage it. Early on we had bad-debt problems too, but the proportion was very small. I actually don't know how we manage it now; probably still the scheme we set a long time ago.

The credit limit we generally give a customer is 3–5% of that customer's turnover with us over the past year; of course, those with bad credit get none at all. That means at the start there's none at all.

We're fairly even-minded: doing less business doesn't matter, but not being able to collect the money is big trouble. The cost of chasing payments is very high, and it also affects business in the region where the problem occurs. I haven't heard of any money we couldn't collect for quite a few years.

Heh, I remember during the last financial crisis (not this one), a Korean supplier asked me: I hear China's triangular debt problem is very serious. I answered: Mm, I've heard that too. After a long pause, he asked me: So you mean you don't have this problem? I said: Right!

> Q (reader, condensed): Is it true your company forbids employees to date? Could you write more about management?

**Duan Yongping:** I was about to go to bed and came down to get something, saw what you wrote, and had to reply.

Our company has absolutely never had a rule against dating! I could never tolerate such an inhuman thing.

> Q (reader, condensed): Immediate family members can't work in the same company: what's your view?

**Duan Yongping:** I worked in a state-owned enterprise. After finishing graduate school I also worked at a company in Foshan.

I know how much damage it does to a company when the bosses' immediate relatives work there. I believe many people would feel the same, if you've had that kind of experience.

Besides, if we allowed it, the company would be full of everyone's relatives; over time they might all be my relatives, and a bit longer after that we'd all have to go looking for jobs again.

China is a society of personal connections, and this rule of ours also saves our managers a great deal of energy. Otherwise every one of us would be driven mad; there'd surely always be a bunch of people asking you to help them find jobs.

Dating is no problem; after marriage you become immediate family, so something has to change.

Now that the company has grown, some adjustments seem to have been made, but I'm not very clear on the details. It seems it's fine as long as you're not in the same company; you can both be within BBK, and so on. Because our companies are highly independent, it doesn't matter much as long as you're not in the same company.

[Translator's note: the compilation lists no question here; this answer follows straight on from the previous one.]

**Duan Yongping:** My understanding of 本分 is not doing things that aren't 本分.

So-called 本分 mainly refers to values and the circle of competence.

How much money we make isn't decided by me; it's given by the market.

Heh, man proposes, heaven disposes.

本分 means not doing what you shouldn't do. Whether you know what you should do is a matter of ability; knowing you shouldn't and doing it anyway is a matter of conduct.

Making money you shouldn't make is of course not 本分.

Although most people think it's fine as long as there's money to be made, our company belongs to the kind that knows some money must not be made.

If there are more and more companies like this, consumers will feel much more at ease.

> Q (reader, condensed): I'm a front-line salesman fresh out of university; any advice?

**Duan Yongping:** Heh, this is a big question; I don't know where to start.

Still, I understand how you feel. I think you're already much better off than I was when I graduated from university.

As for filling in knowledge, I think it mainly depends on you. Fill in whatever you feel you lack.

The most important thing for young people is to pay attention to safety and health; don't be careless because you're young. Heh, I know that saying this is generally in vain; when I was young I didn't listen either.

> Q (reader, condensed): Are there really people who'd pick this over 1% monthly interest?

**Duan Yongping:** I'm not joking. There will always be people who don't trust you.

I don't think we've ever had anyone chase us for a debt. But when you owe someone money, you're the one who's anxious.

> Q (reader, condensed): (A reader: you seem very genuine, no different from an ordinary person.)

**Duan Yongping:** I like the way you put it. I am an ordinary person.

> Q (reader, condensed): Is 本分 especially hard on the mainland?

**Duan Yongping:** Heh, if what you earn is 本分 money, you'll sleep well. With good health you'll live long, and in the end you'll still make a lot of money. Most important of all, people who make money in ways that aren't 本分 actually aren't happy.

> Q (reader, condensed): Do goods payments converted into shares get dividends? Can you exit?

**Duan Yongping:** Same shares, same rights, the same as other shareholders.

Copyright: © LookMinds. Our own edited text and translation, not a substitute for the original; rights in the original belong to the author and the platform. Please see the original link.