Buying Stocks Means Buying Companies | Diff's Pilgrimage Notes

Continuing with Li Lu’s Value Investing and China.

One of the four core principles of value investing is that buying stocks means buying companies. This is a principle Buffett has always adhered to, originally proposed by his teacher, Graham.

When I first encountered this idea, I got it, and agreed with it. I had some direct experiences. Back in 2013, I chose to join the newly formed Liulishuo team at half salary because I saw it as investing in Liulishuo. And while working there, I mostly (honestly, sometimes I’d drift off) approached people and things like an “owner” of the company.

Let me give two very detailed examples: One time I saw a security guard scrolling through his phone, and I went up to him and asked, “What are you doing during work hours?” In the cafeteria, I saw a colleague carelessly toss the rice scoop back into the pot after serving themselves, and I pointed it out directly, “Hey, that’s not right.” Neither of these were part of my job, but I “inflated” myself to think of myself as an owner of the company, to put it plainly, acted like I was the boss. Especially in the case of the security guard, I imagine only a very earthy kind of boss would intervene in something like that.

My “investment” in Liulishuo back then paid off pretty well. With this positive feedback and experience, the idea of “buying stocks means buying companies” made perfect sense to me.

Li Lu’s approach to practicing this principle is really interesting. He believes that since you’ve bought a company’s stock as an “investor” rather than a speculator, you’re an investor and owner of that company. Even if you’ve only bought one share, there’s no need to feel embarrassed, you actually own ownership corresponding to that one share. As an investor, you have the right, and in fact the need, to understand the operations of the company you’ve invested in.

So Li Lu likes to conduct “site visits” at the companies he’s invested in. Of course, not all of them welcome inspections. When he’s turned away, he sometimes chats with the security guards at the gate. Talking about their work status, how they feel, and so on. This way, he can still glean insight into the company’s operations, culture, and more.

It’s the hard work of a smart investor.

Soon, I started mimicking the master. Recently, I’ve taken the “owner” mindset and started inspecting the storefronts of a few companies I’ve invested in, like NIO, Xiaomi, Apple, Starbucks, etc. (This is not investment advice 😄)

Actually, the stores are just the same old stores. It’s just that my mindset, perspective, and approach in visiting them have changed. Now, I’m inspecting with a boss’s eye—taking on-field investigations, with such an “inflated” mindset. Over here, I watch the foot traffic and listen to how customers discuss and evaluate our products. Over there, I check on the service quality and morale of our employees. Sometimes, I even pose as a potential customer and chat with the staff.

“On-field investigations” don’t mean much in single instances, they require long-term persistence. By consistently understanding a company’s products and services over time, you should be able to sense differences and trends at various stages. These understandings can deepen your grasp of a company and enable value judgments.

I shared this crude understanding with a friend: if I were to do value investing full time, first, when choosing to invest in a company, you need to see yourself as joined with that company (whether as a boss or an employee is fine), interacting firsthand with products and people, truly feeling the service, accompanying the company for a few years. It’s quite like joining a startup team as a core member; secondly, you can only invest in a few companies. A person’s interests, knowledge, ability, and energy are quite limited.

This “buying stocks means buying companies” concept doesn’t just apply to value investing. I believe it also applies to the workplace.

When deciding whether to join a company, you need to make these judgments:

Do the company’s products and services have genuine customer value and market growth potential?
Do the company’s products and services align with your professional interest and skills?
Will this company provide enough room for you to grow, take responsibility, and produce your own “masterpieces” in the coming years?
Do you trust the character and capabilities of the company’s founders, management team, and your direct leader?
Do you understand and agree with the company’s values and culture?

Frequently changing jobs, especially if motivated by salary and challenges, is almost like being a speculator in the stock market. Approach the long term smartly.

Additionally, I’ve decided to regularly spend some time each week to go out and look around. With an “on-field investigation” investor mindset, I plan to engage with different products and industries—sometimes experiencing and consuming, sometimes talking with different people. I think, over time, this will help in understanding business and the value of the companies I invest in.

Staying shut in at home, or in the company, or within a fixed circle, is a dead end.

I highly recommend Value Investing and China Purchase Link