YouSaid · the spoken record

Mike Tian

lines on the record: 65
first: 2021-09-06
most recent: 2021-09-06
sittings or episodes: 1
sources: podcast

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“Almost everything we do is qualitative, we're not really big on modeling or anything like that. And even modeling out market shares and whatnot, this is sort of like a finger in the air type of thing. We don't really put a whole lot of stock in that for almost all businesses. There are usually a lot of countervailing forces and you have to have a good judgment as far as how to balance out these forces in order to come out with a final determination of whether the multi-dictory is positive or negative. And sometimes it's actually very difficult. Let me just give you one example that I think a lot of people would know. Let's say visa. So as we know, there is a very powerful tailwind in terms of digitalization of payments. These networks have been very entrenched for decades, very difficult to change. Obviously the stocks and all that perform very well over time. But there are also countervailing forces to that.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“You're describing these sort of signposts, call them, of what an expanding mode is, it seems like a lot of it is qualitative. And if you're looking at a business today in the same business three years out, how do you calibrate some of those things that are clearly qualitative in a business?”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“But for five, ten years, or even longer, or is the company planting those seeds for the longer term growth? How strong the tailwinds in a particular industry? Are they long-lasting tailwinds? You might run for the next couple of years, but beyond that, who knows? Obviously, we are typically looking for tailwinds that are powerful and long-lasting, like e-commerce, enterprise software, whatever it is, something like that. And another dimension you can probably look is really on the opposite side. So what are the sources of moat destruction? So I'll kind of invert the problem. And from what we see, some of the common sources are competition, disruption, secular headwinds in terms of how consumer preferences, generally something around those lines, or perhaps regulatory action doesn't be a longer term. Oftentimes the absence of these negative mode drivers or moat eroders is actually a good sign for the business. If you can't come up with a”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“On the rust of your business store, very similar, but those are very famous examples, but there are many other examples in the world. So if you see that happening, then it's often a powerful sign. Other questions you can ask yourself, is a barrier to entry or the barrier to success in this business going up or down over time? Obviously, if you think barrier to entry is going down, that's a very bad thing up. Typically, it's a good thing. Is the business taking market share? Is it becoming more relevant in terms of its position in a particular value chain or to its customers even? So those are some other examples you can ask. Another dimension we really talk about is a durability of growth, which is very, very important to motrajectory. So is the company constantly investing in itself so that it can grow not just in the next one, two, three years?”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“A network effect company? Are you constantly adding nodes to a network? Are you getting becoming more and messed user ecosystem growing, denser, better however you want to put it? That's one way. If you're looking at switching costs, are you getting more embedded into your customers? Is your customers more and more reliant upon you? They're more and more loyal, so to speak. If you're looking at a brand company, how is that brand evolving from a consumer perception standpoint? So you can kind of go down the list. Sometimes too, which I tend to find it's a very powerful thing, companies will develop complementary mode drivers or complementary modes to the ones they already have. And typically with economic modes, it's sort of like a one plus one equals three situation. A great example that everyone knows about is, let's say, Amazon developing its own logistics. That wasn't part of the mold back in the early days, but when you do that, obviously it has a synergistic effect.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is actually a really complex question because it's one of the things that's easy to think from a very high level but put into practice is a bit difficult. So I'll give you a very, very high level litmus test and this is the way I think about it. So if you can imagine a business that is today and then you close your eyes and you think about what the business looks like, let's say three years from now, a decent length of time from now. And the question you ask yourself is like, all right, in the future, is it a better or worse business than it is today? That's a very high level question you kind of ask yourself, and it tends to reasonably guide you in the right direction. But in practice, when you get down to the nitty gritty, there are also many other ways to look at the problem. So, for example, you can start with most sources themselves if you want. Let's say that your”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“And as you walk through those, a big part of what I've heard about WCM is this concept of not having a moat, but a growing moat, an expanding moat. How do you think through when you're looking at a company what of those factors are the things that are driving that mode to be growing over time”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“Doesn't really work that well is because you have to rely on other people to be quote unquote rational, which doesn't always happen in the real world. But either case, we found that almost all the competitive advantages in the world is some manifestation of a combination of some of these five.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“We think of economic modes as having the following mode sources. So, number one will be, I would call intangible assets, which is really a catch-all for a number of different things. It could be a brand, trademark, commercial relationships, customer relationships, even regulatory protection and all that. So that's number one. Number two will be some sort of a cost advantage driven by scale or something else. It doesn't have to be scale, but something that causes you to produce something at a lower cost than somebody else. Number three, it will be switching costs, fairly self-explanatory. Number four will be network effects. And number five, which is really the least important most source, I think, is efficient scale. And that's the idea that you have a very niche market that perhaps can only support one player. And if somebody else were to get into it, it would destroy the economics for both, therefore, nobody would want to get in there. But the reason that”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“I've talked a couple years ago with Paul and then last year with Mike about the concept of trajectory and how you think about it. I'm curious, how do you start by thinking about what the sources of moats are?”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“Same time, another thing I did is I was what they were called an equity strategist. As part of that role, I was doing a lot of work on, I suppose, Morningstar called a motrend, which is a very, very similar thing to what WCM is doing as far as mojectory is concerned. It's kind of looking at the evolution of a company's moat. Where is it going? And I was one of the people primarily responsible for driving that research methodology, I suppose, with the full benefit hindsight I made a lot of mistakes and kind of formulating the original concept and carrying it out as well. But either case, super interesting learning experience. And really through the work I was doing on the newsletter as well as on Mo Trin that came to the attention of WCM who were morning star clients.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“But Morningstar is also really good because it gives you if you wanted to take responsibility for things, it was a very open company to that sort of thing. And my interests were I was a quite far ranging, way outside of just natural resources. And it's actually a very collegial atmosphere as well. There's a lot of analysts, everyone's all sort of on the same page, thought about companies in the same way. So you're encouraged to talk to all of your colleagues. There's almost 100 equity analysts there covering, God knows how many companies over well over a thousand companies. So I was learning a lot and one of the things that kind of moved into as I became apparent to me, I guess, that my coverage list wasn't going anywhere in the investment newsletter. In fact, it's the same investment newsletter that Mike Trigg, the director of research, essentially at WCM, used to run years ago when he was at Morningstar. So I learned a lot doing that.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“In a very consistent way. Of course, number one is the moat. I had a very, I still think to this day a very, very good way of looking at that that is actually applicable to virtually all the companies that are out there regardless of industry, how they divide it up the moat sources and things of that nature, how the characterized companies as wide mouth, narrow mode, no mode, that mental framework, that way of looking at the world is awesome. So I joined Morningstar as a fresh green analyst and I was actually on the natural resources team, which is ridiculous. Anything I do now, of course, so I used to cover, believe it or not, coal companies and ethanol companies and these weird little alternative energy companies, oil pipelines, refineries, things of that nature. It wasn't the best coverage list. I just put it.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“Mike, great to see you. You too, Ted. I know there's a history of Morningstar trained analysts somehow finding their way to WCM. You fit right into that, but why don't you tell a little bit of your story and how you got to WCM in the first place? Yeah, absolutely, as quite a serendipitous, I would say. I joined Morningstar right out of undergrad in 2006. I was very fortunate to land there. At that point, the Morningstar Equity Research Department was still very, very new. They were just really trying to figure it out. And it was very good because as a young analyst, I didn't have a senior analyst to report to. I was giving a ton of responsibilities right off the bat, essentially, which is insane for like a 21-year-old. I was basically the primary coverage on a number of different companies. And the best thing about Morningstar is that they gave you a very nice framework to think about things. And they looked at the university.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest is Mike Tian, portfolio manager and analyst at WCM, where he oversees the firm's emerging market strategy and things deeply about moat trajectories. Our conversation begins with Mike's definition of moats and assessment of moat trajectories using Visa as an example. We then turn to his application of moat trajectory analysis in China, including the value of heavy industries, analysis of culture, consumer preferences, risk, and some investment examples along the way. We close with Mike's thoughts on the moat trajectory of WCM itself.”
2021-09-06 · Capital Allocators · Mike Tian – Moat Trajectories and Investing in China at WCM (Capital Allocators, EP.212) · IDENTIFIED FROM THE TRANSCRIPT · source