The only real buyer of a company is itself
The only real buyer of a company's stock is the company itself. Everyone else is just passing through.
Thank you for all the positive feedback from those who enjoyed Part I.
For those that are new here, I found “The Tao” (大道）on my last trip to China, a compilation of conversations and online exchanges with Yongping Duan, one of the greatest (and O.G.) VCs and entrepreneurs in China, alongside Neil Shen (Sequoia China) and Lei Zhang (Hillhouse). His most notable investments include Apple, Pinduoduo, Alibaba, Tencent, among others. He also built one of the largest consumer electronics businesses BBK Electronics (20% global smartphone market share), which owns Oppo, Vivo, and many other prominent brands.
In the age of AI, I could easily find the book in Chinese and use a tool to put out an English version. But I decided to translate these pages by hand, line by line, the old-fashioned way. I re-arranged some sections for clarity.
Translator’s Note: Duan's communication style is philosophical, often incorporating classical Chinese idioms and contemporary internet phrases. My aim here is to convey the essence of his ideas rather than provide a literal translation. The original work is a compilation of Duan's online exchanges and aphorisms, so its somewhat fragmented nature is deliberate.
Investing is simple, but not easy
Netizen: What are your thoughts on index funds? Understanding companies is too hard, and I also have a full-time job. Buffett once said that index funds can outperform most individual stock investors in the long run.
Duan: Buffett said long ago that for most investors, buying low-cost index funds is the best approach. I agree.
Buffett was referring to American index funds. I think more than 85% of investors would get better results from index funds. But here's the problem: who thinks they're part of that 85%? Very few people would place themselves in that category. If you can recognize that you might be, that means you're wise, haha!
Reportedly, around 85% to 90% of people lose money in the stock market, and another 5% break even. So why don't these people just buy the S&P 500? Over the long term, it delivers approximately 10% compound annual returns (although I haven't studied this in depth). The problem is that those 85% to 90% of people all believe they can beat the S&P 500. They probably understand neither the S&P 500 nor themselves. This is a fascinating problem, though it's not really about investing.
For those who consistently lose money in the stock market, buying the S&P 500 is probably the right approach. Just treat it like a high-yield savings account!
Netizen: What do you think is the biggest risk in investing in Berkshire Hathaway?
Duan: I own quite a bit of Berkshire. I don't really understand your question. I think Berkshire will very likely beat inflation, has better than 51% odds of beating the S&P 500, and will beat the returns of people who say they don't like Buffett with 99% certainty.
For most people, buying the S&P 500 is the right choice. Buying Berkshire is still just buying "one" company, and the volatility that comes with that can mess with your emotions. Although I think Berkshire will outperform the S&P 500 long-term, it won't be by a huge margin. And holding the S&P 500 helps people who don't really understand Berkshire sleep better at night.
Better to be robbed by inflation than to lose in the stock market.
For many people, value investing is like a mountain across the valley — it looks close enough to touch, but it's probably still miles away.
Pretending to swim can be very dangerous—the same goes for pretending to invest. But many people don't understand how dangerous pretending to invest is until they finally learn the hard way.
The most dangerous day to invest is Monday, followed by Friday, Thursday, Tuesday, then Wednesday. I think Hemingway said something similar?
What I understand as investing has nothing to do with the "market" in the short term, so it's not a question of who's smarter—it's that everyone understands things differently. My view is that speculators believe they can outwit the market. My version of investing has little to do with market sentiment, meaning it's irrelevant what others think in the short term. If speculators truly thought the market was smarter than them, they wouldn't participate in the first place (unless they're just playing for fun with small amounts, haha). Of course, most people eventually prove that markets are indeed smarter. In the long term, markets are extremely intelligent!
In fact, many "buy and hold" investors are actually speculators, because they don't know what they're buying. After purchasing, they ask others what they think of the company, and when things go wrong, they use "long-term investing" to make themselves feel better. You have to understand: nothing hurts more than buying and holding the wrong stock for the long term.
Netizen: What did the mainstream views actually bring us?
Duan: There's only one thing I want to say here: "Long-term investing" doesn't automatically equal value investing, but value investing is generally long-term investing.
Value investing isn't buying blindly and holding long-term. Only good companies are worth buying at the right price and holding for the long term. Of course, a good price doesn't necessarily have to be rock-bottom pricing (though it's even better if it is). A good price is one where you look back 10 years later and think: wow, that was a good price.
Maybe the phrase "long-term investing" has some issues—calling it "investing for the long term" might reduce some misunderstanding.
Netizen: "Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things." How should we understand this Munger quote?
Duan: Don't do things that are wrong, so you make fewer mistakes. For people who have the ability to do things right, over the long term, they'll come to understand what compounding truly means.
Netizen: I’m very curious, as an excellent investor, have you made mistakes yourself?
Duan: I have made mistakes in investing, and I will make them in the future. My past mistakes were either doing fundamentally wrong things or execution errors while doing the right things. In the future, my mistakes will probably be execution errors—failing to do the right things well enough.
Netizen: If a company fabricates its financials to get high valuations when going public, which led to the chairman going to jail, but the company's industry has a gross profit margin of more than 30% and just signed a big contract—when the shares dropped drastically, I bought them and patiently held. I called the company to understand the core business development, and the new chairman will adjust management to prevent this from happening again. Does what I did make me a speculator?
Duan: If you're truly prepared to hold for a decade, then you're not. I hope you sleep well at night.
Netizen: When the company gets in trouble, the more exposure the better—swinging hard toward redemption, hoping to rise phoenix-like from the ashes.
Duan: I find that people and companies who survive through luck and manage to revive themselves will continue doing the wrong things. It's like when a fraudster gets arrested—they usually think it's because their methods weren't sophisticated enough and they need to improve their technique.
The craft of value investing
Netizen: How do you think about the “craft” of value investing?
Duan: I think the craft of value investing is researching a business's future cash flows and properly discounting them. Buffett's concepts of economic moats and good management teams both belong to this "craft." In reality, craft is hard to learn from books and can't easily be taught in schools. More often than not, it has to be slowly developed through intuition.
When it comes to understanding investing, reading lots of books doesn't help much. Good investing books are few and far between—and so are readers with the judgment to choose them.
Netizen: What I want to learn most is "doing things right," and persisting in that.
Duan: Doing things right requires learning—learning in practice, learning from mistakes. If you never do anything, you'll never make mistakes, but you'll also never learn.
There are different levels of skill in doing things right. Everyone has their own learning curve, and no one is immune to mistakes. Supposedly, anyone can become an expert at anything after ten thousand hours.
Fast is slow
Netizen: The username you use for auctioning lunch with Buffett was “fast is slow.” Can you explain what it means?
Duan: Going too fast actually makes you slow. It's similar to the Chinese saying "欲速则不达"—haste makes waste. This has become my fundamental philosophy after many years of operating businesses and investing. When you do things, you must approach them with earnestness, patience, and persistence. Don't always chase "more, faster, better, cheaper."（多快好省）1 Taking shortcuts won't get you far—this is very basic logic.
I always promote "fast is slow," but many people misinterpret this as "slow equals fast." That's not what I mean. The inverse of "haste makes waste" isn't "slow is fast"—that's logically unsound.
I think setting investment goals is a very stupid thing to do. What I mean is: when you set a target rate of return as your goal, you will do stupid things sooner or later.
Once you have a required return rate, your behavior becomes distorted, because people will take desperate risks to achieve this goal. It's the same old saying: for investing, process matters, and having a target return rate in mind will lower your returns. Perhaps you can have a "threshold rate"—anything below that threshold, you won't touch. I think the baseline for that threshold rate should simply be the bond rate.
Netizen: you have had really high returns on companies like Netease and Apple, but in terms of the opportunity cost of selecting individual stocks, you only compare to American bond (with very low rates), and not S&P 500. Why?
Duan: Actually what you compare to won’t change the principles of investing. I like setting lower standards, it warrants higher satisfaction. Beating S&P 500 for the long-term is very hard, although my actual track record overall outperformed S&P 500, I would rather attribute it to luck, because I don’t know if I can continue to do so.
Personally, the most important motivation behind investing is value preservation, to maintain that the purchasing power doesn’t go down. Everything else is auxiliary. Many people fail to realize that maintaining value is very hard. Maybe looking at M2 will enlighten some ideas?2
Investing is the best way to fight inflation. It’s not one of the best ways. So not having the idle capital to invest is a very painful thing.
Making fixed income will always lose to inflation, so in the long run that is wrong. But if you really can’t find any company that you’d like to invest, then investing in fixed income is a choice. It’s definitely better than putting cash in a safe.
Netizen: What mistakes have you made investing in the past 10 years? What weaknesses have you compensated for? What do you think is the hardest?
Duan: I've only made a few types of mistakes over those years: investing in what I don't understand, borrowing money, and shorting. Every mistake relates back to one of these three. I will never borrow or short again, but I might still invest in something I think I understand but actually don't. So my error rate should drop significantly.
The hardest thing is doing nothing. You'd understand why if you were sitting on a pile of cash. Buffett said the easiest time to make mistakes is when you have a lot of cash on hand. I'm the same way.
Netizen: When you have idle cash on hand but can't find suitable stocks, I get anxious knowing that without "investing" the money, it's depreciating. What would you do in my position?
Duan: I get anxious too, but don't make decisions when you're anxious. Decisions should be based on rationality. When Kweichow Moutai3 was at 2,500 RMB (~$350), I thought about selling but gave up. I wouldn't know what to do with the cash after selling, and with interest rates so low, anyone would get anxious. It's not worth it.
Selling the Moutai stock isn't the real problem—the problem is what to do with the money. Most people avoid one trap only to fall into another.
Actually, selling Moutai to buy Tencent would have been a decent decision, because you wouldn't lose much money in the end. Many people sold Moutai and bought "fake Steve Jobs" tech companies4—you'd never get that money back! That would be a real tragedy.
Netizen: Selling when overvalued, but if you have the stillness to save in the bank until next time it's undervalued, that would be ideal! But how many investors can have such stillness?
Duan: Anything that requires "stillness" isn't something that makes people happy—or worse, it may be something that keeps you up at night.
Netizen: Those with strong Tao vision don't need stillness. Normal people don't have that Tao insight, but still want to manage money, so they need to choose a path that suits them. Everyone's comprehension differs—forcing them to use the same investment methods as the Tao masters might be completely counterproductive.
Duan: Stop making excuses! It won't do you any good.
Netizen: Being dutiful and honest... doesn't really require stillness.
Duan: Rationality is the key.
Netizen: What if I come across good companies when I don't have money?
Duan: If you have more money, buy more; if you have less money, buy less!
Thinking about the market might be wrong
In fact, every company will eventually become what it's meant to be—and so will stock prices. There are no irrational stock prices in the long run, but there certainly are in the short term.
Judging risk based on a stock's volatility is quite stupid. I think there are only two real types of risk: (1) going to zero; (2) insufficient returns. Some truly great businesses are highly volatile—like Xishi Candies (a public company in China), which has two unprofitable quarters every year. In contrast, some really terrible companies have stable earnings.
Think about how many people around you still use “volatility of a stock” to measure risk.
Netizen: I remember you like to buy and sell stocks at market price. I wonder if you're affected by short-term fluctuations? If you buy and it immediately drops 5%, don't you feel some regret?
Duan: If you really want to own the company, you won't care. Otherwise, since stock prices always fluctuate, you'd be feeling regret all the time. If most investors are truly gambling, then there will definitely be times when you can make a lot of money.
What I'm saying is that there must be specific moments (and over a long enough time horizon, there will be many) when value investors can capitalize. These moments refer to time periods, not just single instances.
Netizen: Buffett once said that if the market were always efficient, he'd be a homeless man.
Duan: My personal understanding: if the market were always efficient, how would I make money? In fact, the market is efficient most of the time, but it also has its irrational moments. Haha, volatility is a friend.
Actually, when a company you truly understand is falling, that's something worth celebrating—otherwise, you don't really understand it.
Netizen: I’m sad I have no spare cash to add to my positions. When stocks drop heavily but I have no money to buy more, should I still be happy?
Duan: it’s none of your business?
What I mean by "none of your business" is at the "no spare cash to add positions" part. Since you don't have spare money anyway, stock prices falling is irrelevant to you.
People talk about bull markets and bear markets, but what they're really thinking about is making money from market movements—that's actually speculation. Investing makes money from what companies earn. These are fundamentally different.
I don't fight the market; I simply try to ignore it.
You've probably spent years trying to predict the market. Try forgetting about the market and focus on studying companies instead. So many people have spent decades studying markets and still can't retire—maybe you should think about why?
I had originally planned to buy heavily into Pinduoduo and Tencent, but thinking the market seemed pessimistic and would stay depressed for a while, I figured I could sell some puts to lower my entry cost. Well... I always say that any consideration of the market is probably wrong, and this is a concrete example.
Every stock has only one real buyer
In investing, the most important thing is to treat public companies as private companies, then decide what to do rationally.
The only real buyer of a company's stock is the company itself. Everyone else is just passing through. If you truly understand this, everything else becomes clear.
I'm stating a fact. For example, if Apple's operations don't change but everyone wants to sell the stock, who would be the buyer? Using what money?
Every stock has one real buyer that will ultimately determine the stock price—everyone else's impact is ephemeral. The only buyer is the company itself, and the funds to purchase stocks are generated from profitability.
Future free cash flow means the same thing!
If you think about companies as private companies with a single shareholder, it probably becomes easier to understand. Using this private company framework is invaluable—otherwise it's easy to miss the essence.
Don't touch stocks without understanding this. Take the time to think!
"Market efficiency" means the market will eventually be efficient. But here, "market" actually refers to the business itself, not trading activity! For example, if the market doesn't like NetEase and its market cap stays in the tens of millions while it makes $2 billion a year, when the stock eventually rises, how much does that have to do with "market sentiment"?
Another simple example: Many years ago, I met Tim Cook and he asked what I do. I said "investing." He asked what I invested in. I said Apple. He asked what else. I said nothing else—it's all Apple. He didn't continue the conversation, perhaps because I was the first investor he'd met like this. Then I said, if Apple stays at this price for the next decade, I might become the only shareholder, because Apple's profits will buy back all the other shares except mine. He smiled and didn't say anything. As everyone knows, this unfortunately didn't happen—especially since someone named Buffett came along and messed up my plan5.
Netizen: Using Tao to invest, and especially when you think, do you feel lonely?
Duan: Never. Because I never care about what others think of my investments, but I sometimes want to say: You idiot!
Translator's reflection
Translating Duan's words by hand, character by character, turned out to be unexpectedly meditative.
The irony wasn't lost on me. Here I was, learning about the Tao through the slow craft of translation. Duan teaches that wisdom must be grasped through intuition rather than study; yet, the very act of translating his thoughts and feeling my way through the cultural gaps between Chinese philosophical discourse and American investment language became its own form of intuitive understanding.
There's something almost rebellious about choosing the slow path when fast options exist. Each mistranslation taught me something about both languages. Each revision brought me closer to what Duan actually meant, not just what he literally said. The process embodied his central teaching: shortcuts might get you there faster, but they won't get you there whole.
I hope these conversations inspire you to question not just your investment assumptions, but the deeper patterns of how you approach uncertainty, patience, and the gap between knowing something and truly understanding it. Duan's brutal honesty about human nature—including his own mistakes—offers a rare gift in our world of financial guru-speak: the permission to admit what we don't know and the wisdom to stay within what we do.
Perhaps that's the most valuable return of all.
This references a famous Mao-era slogan (多快好省) promoting rapid industrial development. Duan's critique suggests that this mentality—seeking maximum results with minimum effort—is counterproductive in both business and investing.
M2 is a measure of money supply that includes cash, checking deposits, and easily convertible near money. Duan suggests that examining M2 growth rates reveals how rapidly fiat currency loses purchasing power through monetary expansion, making the case for investing over cash holdings.
Kweichow Moutai is China's most valuable liquor company and often considered the "Coca-Cola of China." It's a favorite among Chinese value investors due to its strong brand moat and consistent profitability. The stock has been one of the best-performing Chinese equities over the past decade.
“Fake Steve Jobs” refers to the wave of Chinese tech companies in the 2010s that positioned themselves as "the next Apple" or were marketed as revolutionary consumer electronics innovators, but lacked Apple's fundamental business model and execution capabilities. Many of these companies saw their valuations collapse.
This conversation took place in the early-to-mid 2010s, when Apple was trading at much lower valuations despite massive cash generation. Duan's comment about becoming "the only shareholder" isn't hyperbole—it's mathematical reality.
Apple has indeed used its enormous profits for share buybacks, reducing its share count from over 26 billion in 2013 to around 15 billion today. The company has returned over $600 billion to shareholders through buybacks and dividends since 2012.
Duan's plan was "messed up" when Warren Buffett began buying Apple in 2016, eventually accumulating a position worth over $100 billion at its peak. Berkshire became Apple's largest institutional shareholder, making it impossible for any individual investor to "own it all" through the buyback mechanism.