Articles I’m reading —

Hayden Capital’s latest investor letter is out and as always, it’s a great read. Fred Liu, Hayden’s managing partner, has quickly become one of my favorite investors to follow. Each of his letters offer a master class in fundamental value investing. In his latest, he talks about the global competitive landscape, investing in China, and then discusses two compelling long theses for both Amazon (AMZN) and iQiyi (IQ). Here’s the link and a cut from the letter.

Few investors have the opportunity to look across borders, and thus their knowledge base is extremely siloed (for example, “US Small Cap Consumer”). I firmly believe this creates an opportunity for longer-term investors who are willing to break this mold, and be open-minded enough to recognize that sometimes the US business models & practices aren’t always best.

In particular, I’ve spent a lot of time studying China. This isn’t just because of my family background there (although it helps) – but rather because I believe successful business models are a function of evolution & adaptation – aka [survival of the fittest] X [access to capital]. My theory is the business models that can scale globally, and create astronomical wealth in the process, are those that have been battle-tested thoroughly in their domestic markets first. Think of it as a Darwinist process, where out of 1,000 startups, the weakest business models will fail, and only the strong adapt, survive & get funding. By the time they arrive on the global stage, they’re already the best of the best in their home country, and thus have a strong chance of having evolved the best model for succeeding elsewhere too. It’s even better if that home country was populous, entrepreneurial, had demanding customers, and formidable competitors who put up a fight. For this reason, it’s also more likely that the best business models from a >1 Billion population market will be more durable than one from a 5 million population market.