Value Investing Isn't Holding Long — It's Stashing a Big Pile in the Bank First
No value investor ever went from broke to rich doing value investing; they made money first, then chose to live the value-investing life. Buffett's real engine is 60 to 70 wholly owned subsidiaries pumping cash, not a compounding myth.
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The story of the two old ladies in heaven is something we made up
In 1999, new apartments along Beijing's Third and Fourth Ring Roads sold for 4,000 yuan per square meter and wouldn't move; a courtyard house inside the city cost only a few hundred yuan per square meter, and people were unwilling to borrow from banks because they felt debt was shameful. Fang Yan was working at an ad agency at the time. To convince the market, he first had to convince the people around him, so in the office he fabricated the story of the Chinese old lady who saved her whole life to buy a house and the American old lady who took out a loan, bought a house, and finished paying it off just before she died — then spread it through the media. Once he believed it himself, he bought his first apartment in 2000, made a rule of buying one every year, and planned to retire at 40. The detail shows: many wealth beliefs treated as common sense trace back to a single marketing campaign.
— Fang YanCompanies that sell advice can't go public
Fang Yan ran an ad agency in his early years. His clients went public one after another, so he asked a securities firm whether they could take him public too. The answer: your kind of company is called a ‘people-based company’ — you sell ideas, and to come up with more ideas you have to hire more people. Only a ‘capital-based company’ that pools money together generates enormous force, and only that is suited to going public. Restaurants are the least suited to listing, because one location being delicious doesn't mean a hundred will be; Haidilao could list because it first built a condiment factory and had a standardized product. That classification directly determined his later decision to give up the billionaire dream and buy stocks instead — ‘once you buy a stock, you are the listed company.’
— Fang YanMunger said value investing is a big pile of money in the bank
At the Daily Journal shareholders meeting, someone asked what value investing is, and Munger's answer wasn't the textbook line: you keep a big pile of money in the bank, then patiently wait for an opportunity. Fang Yan thinks this is the truth — no value investor ever went from broke to rich doing value investing; they made money first, then chose to live the value-investing life. India's Pabrai also sold his company, put a big pile in the bank, and waited for opportunities. The companion rule is ‘if you want to be a value investor, you have to live the value-investing life’: Buffett keeps three to four hundred billion US dollars in cash in the bank, and has lived for over fifty years in a $30,000 house in a fourth-tier city.
— Fang YanBuffett's engine is 60 to 70 subsidiaries, not compounding
Fang Yan breaks it down: over fifty years of doing business, Buffett gained control of 60 to 70 wholly owned subsidiaries, and those subsidiaries in turn control several hundred grandchild companies. The CEOs' job is to continuously generate free cash flow, but they have no right to allocate it; the cash flows up to Berkshire, where a few big heads allocate it. The insurance group contributes only about a quarter of revenue; more comes from companies making gloves, old work boots, T-shirts, hats, bricks, wedding rings, DQ ice cream, See's Candies — the eating, drinking, and daily life of ordinary people. These businesses don't need outstanding CEOs; almost anyone can follow the rules. So Buffett isn't 100% trading stocks — he controls a large real-economy conglomerate in America.
— Fang YanIf you've never run a company, you can't understand one
Duan Yongping said ‘you'd better run a company,’ and Fang Yan says that line stings as much as Munger's: if you don't build a company yourself, don't hire people, don't negotiate with clients, don't get hurt by clients, you don't know how complex the business world is. His experience as a boss is that ‘there is no company that doesn't lose money’ — embezzlement, employee negligence, fake invoices for reimbursement, all unavoidable. That's why he won't invest in restaurants. He also cites a brand caught in a scandal: it claimed 6 billion a year, with 300 million in profit on a single-brand basis, yet the group was losing money — essentially it was selling vegetables for others for free, and the money was earned by the vegetable and soy sauce sellers and the mall landlords.
— Fang YanThe 80/20 rule is understated — it's 2% winning and 98% losing
Fang Yan believes that over a long horizon it isn't 20% winning and 80% losing, but 2% of people making money and 98% being losers. His own experience: in March 2015 he withdrew his money from the GF Securities branch at SOHO on the East Third Ring Road. The manager walked him out and said only two people at their branch had made big money. He withdrew 120 million yuan, on principal of just over 13 million. Three months later the whole market collapsed and no one could get out. He forced his nephew to get out too; the nephew couldn't resist and went back in, so he had to force him out again.
— Fang YanTie yourself to the mast to hold onto the money
After withdrawing 120 million yuan, the market kept rising, with daily gains of over 10 million, and Fang Yan himself was struggling. His solution was to buy a product at ICBC that he couldn't withdraw — an ICBC-issued bond benchmarked to foreign exchange, with a six-month contract, paying 10,000 yuan a day, but absolutely not redeemable. He says there's only one way to tie yourself down: a physical method, like Odysseus tying himself to the mast and having his crew plug their ears with wax. On June 15, the day the market collapsed, it happened to be his wife's birthday. The whole restaurant was sighing and panicking, but only their table was cheerful.
— Fang YanBuying jets, chasing celebrities, climbing Everest are reverse indicators
Fang Yan says this isn't a curse, it's objective reality: no one has climbed Everest and then had their business thrive afterward. Climbing Everest is a show-off mentality; getting up isn't that hard — you rely on a Sherpa team to help you, train back and forth for over two months, and it costs enormously. Zhang Chaoyang himself reflected that he spent several months away from the company to climb Everest, and that was the worst thing he could have done. If you're away from the company year-round and employees watch you climb Everest on TV every day, the team's mindset changes. Private jets are the same: in the US they're bought by 20 or 30 people crowdfunding, and there's objective demand given the vast, sparsely populated land and inconvenient transport; China has no such demand. This game was played once in China, and fewer people are buying now.
— Fang YanIn their own words · checked verbatim
So we made up that famous story — the two old ladies meeting in heaven — that was made up, that was made up by us.
所以就编了那个著名的故事 就是天堂上俩老太太见面了 那是编的 那是我们编的
Fang Yan11:11
No value investor ever went from broke to a tycoon doing value investing. None. Every value investor made money first, then chose to live the value-investing life.
所有价值投资者 都不是从穷光蛋 干价值投资 干成大富豪的 没有 所有价值投资 都是挣着钱以后 选择了过价值投资的日子
Fang Yan34:33
If you don't build a company yourself, don't hire people, don't negotiate with clients, don't get hurt by clients, you don't know how complex the business world is, and you can't understand a company.
你不自己去做一个家公司 你不去雇人 你不去谈客户 你不去被客户伤害 你不知道商业世界多复杂 你无法看懂一家公司
Fang Yan51:37
There's only one way to tie yourself down: you have to think of a physical method to tie yourself down.
你只有一个办法把自己绑住 就是你得想一个物理的办法 把自己绑住
Fang Yan1:08:50
The most terrifying thing is always that you take three steps forward and one step back — hesitation. The most terrifying thing is indecision, and then half-believing, half-doubting.
最可怕的事情永远是 你走三步 回一步 就是犹豫 就是最可怕的就是犹豫不决 然后半信半疑
Fang Yan1:42:04
Figures
| Daily yield of the ICBC FX bond product | 10,000 yuan | 1:07:50 |
| Number of Berkshire wholly owned subsidiaries | 60 to 70 | 41:35 |
| Insurance group's share of Berkshire revenue | About one quarter | 41:35 |
| Rental apartments Munger personally owned | 1,500 units | 45:37 |
| 1999 Beijing Third/Fourth Ring new apartment price | 4,000 yuan per square meter | 10:09 |
| 1999 down payment ratio | 10%, 5% when aggressive | 10:09 |
| Sales of “The Next Day” | 100,000 copies in four months | 45:37 |
Glossary
- Insurance Float
- Money an insurer holds between collecting premiums and paying claims; a liability on the books, but available for investment.
- Free Cash Flow
- Cash a business can freely deploy after paying operating costs and capital expenditures; the source of dividends, buybacks, and reinvestment.
- See's Candies
- A long-established American chocolate company acquired by Berkshire in 1972; a classic Buffett case study.
- Sirens
- The sea nymphs of Homer's epic whose song lured sailors onto the rocks; Odysseus had his crew plug their ears and tied himself to the mast.
How to listen
Investors who already believe in value investing but haven't thought through where the principal and cash flow come from, and founders who want to understand Buffett's actual wealth structure.
The host's closing monologue after about 1:43 is optional; the guest segment before it is denser.