Investing in vulnerable companies is equivalent to crime
There is no doubt that the outbreak has had a huge impact on many industries. However, there are opportunities in times of crisis. There are always some companies. After this period of time, they may usher in greater growth.
As an investment institution, we are also paying close attention to the market. We believe that the pain caused by the epidemic cannot change the trend of the tide—the transformation of the efficiency of China’s supply chain, the upgrading of products in the Chinese consumer market, and the Synergistically, these trends will continue and may even accelerate after the epidemic is over.
Some outstanding companies already have “traits” that can help them go up against the tide. They will continue to seize these opportunities and thrive after the epidemic—just like the new saplings after a forest fire. These “characteristics” are summarized as “four modernizations”, that is, centralized, online, outsourced collaboration, and automation.
First: Centralization: Head companies will accelerate the harvest of customers and resources.
Reviewing the entire business history, good companies beat poor ones often in the winter. Because when the economic situation is good, poor companies blindly pursue expansion and occupy the market, do not pay attention to cash flow, lack core competitiveness, and do not build moats. They are often more vulnerable in the epidemic and are eliminated first, which is equivalent to making room for good companies in the future. Moreover, only when backward companies are eliminated from the market will innovation accelerate and new opportunities will be created. This will benefit entrepreneurs who persist in innovation and build moats in the long run. High-quality companies and industry-leading companies will become stronger and larger.
Second: Online: Online communication and transaction synergy promote more offline business to migrate online.
The outbreak of this sudden crisis has provided many business models with an excellent trial ground and touchstone. In this sudden change, all aspects of social collaboration have accelerated the migration from offline to online formats, which is equivalent to accelerating the economic metabolism. We have learned that many Zhongding eco-companies that are committed to online have saved huge promotion costs and trial and error costs during this time, and foresee that they have even achieved huge benefits brought by offline migration to online.
Third: Outsourcing collaboration: companies are outsourcing non-core business, and the trend of inter-ecological network collaboration is obvious
This is a trend we’ve been following. The transfer of the outbreak materials has greatly promoted the understanding of the supply chain efficiency of professional companies in various sectors of the society. We foresee that this will accelerate the trend of government and enterprises outsourcing non-core business to professional companies. In addition, in the past two years we have observed , Our entire society is undergoing a processized and linearized collaboration model in the IT eraA comprehensive, networked collaboration model that has entered the network age. We believe that the information, behavior and data of each node in the supply chain will be digitally projected on the same plane, and all nodes in the supply chain will have the opportunity to share information and collaborate on this same plane. Operation. In this trend, the professionalism of collaboration and seamless visualization of collaboration can be truly effective.
Fourth: Automation: the demand for labor is gradually replaced by automated equipment
Under the epidemic, population movements are limited, and many companies’ resumption of work is constrained by labor supply. This is bound to accelerate the search for automated solutions. This is also confirmed in the order data level of the automation-related companies we invest in. This is a handful of companies that will benefit directly from both short- and medium-term business growth.
Since 2014, we have begun in-depth investment layout in the supply chain + field. The main line of supply chain innovation lies in specialization, onlineization, centralization and automation.
From our perspective, the aforementioned “four modernizations” represent the direction of innovation. We believe that the epidemic will be a catalyst for the “four modernizations” and will mean “organic at risk” for companies with the characteristics of the four modernizations.
In addition, this epidemic also made us realize that crises often bring “anti-fragile” wisdom. For companies, sometimes stopping and reviewing things is very helpful to master the overall rhythm. During this time, the Zhong Ding team pushed forward the online collaboration system, and the team carried out detailed future work planning, which is very meaningful.
This time has also promoted our thinking about our investment philosophy. We must persist in investing in the best quality companies and the best entrepreneurs, rather than focusing on short-term growth and scale. As Munger put it, “Investing in a fragile business is equivalent to committing a crime.” This is especially true in the epidemic. Because only high-quality companies that adhere to long-termism and continue to build moats can truly cross the cycle and survive the unexpected crisis to meet the next era.
Amaranth is full of reed sprouts.
We firmly believe that no spring will not come.