Marko, yes. He sold most with the exception of his 401k stocks he has been 100% bonds since.
Gator, in response to your 3 points, Recommending Chinese stocks with good numbers, shareholder conflict, cultural differences.
Yes the numbers seem crazy good but that’s why those should really be taken with a grain of salt and not be as much of a decision factor. You have to keep in mind there is no real strong accounting enforcement or punishment in china for incorrect/wrong books. If a deal seems too good to be true that would incline me to do more cross checking and gut checking. Its necessary to treat these investments with a different set of rules before diving in. Use a one size fits all framework will eventually get you burned. Do more rigorous due diligence, don’t take it at face value.
You are hitting the head on why its difficult to make investments out of Chinese companies so I’ll detail it out here to the best of my knowledge in as brief as possible.
Running the company for shareholders vs for the owners & Culture:
Chinese business is very family oriented, while in western view this might be seen as a ‘bad’ thing but if you think about it, that just consolidates the company’s power so there is less internal conflict in direction, strategy, and decision making. Chinese have the mentality that if they created it (the company), its theirs and they will do what they want. In my perspective, a red flag is if they (the family/owner) does not seem to have that control…because well that means they have given up on the company and the successor will not care about the outcome - they are just there to make a living.
Shareholder value: I see this as a conflict of interest in all cultures,
Chinese don’t run companies for shareholder’s as I detailed in the culture viewpoint above. BUT - if their goal is to be world famous and dominating in their industry then investors will benefit as a byproduct of a successful company.
I also think that this view can be very skewed. In the US we demand quarterly results, all very short term thinking that can potentially cause risky behavior like leveraging debt - this is all in the name of pleasing shareholders. Doesn’t that sound just as risky? That’s why vision is important for all companies anyone invests in, successful long term investments all have a vision for that future. Just think Amazon, in the early years everyone doubted, they don’t make money, they spend like crazy not creating any type of earnings for shareholders, etc.
I can only recommend that everyone have a different evaluation methodology for Chinese companies. for the reasons above. And the last most important thing is that institutions and everyone globally is willing to invest in U.S. stocks because there is a lot of trust and relative confidence in the U.S. Not everyone feels the same about China, for this reason gains in shares will be limited until global mindset is changed. Because of this, I would never compare potential valuations companies in China to a western counterpart.
Merc