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The Evolution of My Research Process - Part II

The time travel research method

In my previous post I reflected upon the first three phases of research I went through as an evolving value investor. Today’s post will be focused on a key stage of my evolution.

Phase IV A – Time Travel Opportunities

I can’t remember exactly when the name of Zhang Lei and Hillhouse Capital Management first came to my attention but I own a great debt of gratitude to Mr. Lei for his inspiration.

It was probably in 2015 that I started to notice that there are more and more articles (especially in China media) about Hillhouse and Zhang Lei. It’s almost impossible not to notice Hillhouse. Their investments seemed to be at odds with value investing. They chose start ups like Blue Moon and Chinese technology companies like Tencent (TCEHY) and JD.com (NASDAQ:JD). I could rarely find a “value stock” if we use conventional definition of value investing. And Hillhouse is branded as a long-term value-investing platform. What did I miss?

Well, it turned out Zhang Lei is playing a different game.

One day I read an article and it suddenly clicked with me that Hillhouse is actually practicing one of the highest levels of value investing. They do super deep research on industries that are riding big waves; they then find out the best model and the best companies in the developed nation (mostly in the U.S.); and they go back to China and invest in the companies that can potentially replicate the success of the U.S. counterparts. If they can’t find one, they’ll find a partner and create one.

And they serve as both value creators and value connectors. For instance, they couldn’t find the Chinese equivalent of Mayo Clinic, so they partnered with Mayo Clinic and created the Chinese version from scratch (Huimei Healthcare). They brought the best from the U.S and planted the seed in China. Since in many areas China is years behind the U.S., and since the business model has already been proven in the U.S., investing in those early-stage China companies is basically a time travel play.

This realization had profound impact on me. I really liked this idea of time travel. I’ve already spent years studying the best businesses in the U.S. I am Chinese and I have a lot of Indian friends. Why wouldn’t I play the same time travel game?

So in 2016, while I was building a circle of competency in health care stocks, I also took on a big project – the global online travel agency industry. I was interested in Priceline (PCLN) and Expedia (NASDAQ:EXPE) anyway. China was a few years behind the U.S. in the OTA market, and Ctrip (CTRP) just consolidated the Chinese market. And it looked like India was a few years behind China. It seemed like a perfect industry.

For a few months, I studied the history of the global travel market. I read everything I could read on the OTA industry. I was very interested in learning why Priceline (PCLN) has been much more successful than Expedia (NASDAQ:EXPE). And then I studied the evolution of the Chinese OTA market, the brutal pricing war, and Ctrip (CTRP)' consolidation of the market in the end.

From my research on the U.S., European (Priceline’s bookings.com is mainly a European business), and Chinese OTA market, I came up with what I called the best OTAs playbook. Then I read what I could find on India’s OTA market and the major players back then such as MakeMyTrip (NASDAQ:MMYT), Yatra and Go Ibibo. I also reached out to my Indian friends for help. In the end, it was obvious to me that MakeMyTrip was likely to be the Indian version of Ctrip (CTRP) and Priceline (PCLN). So I invested a good portion of my personal portfolio in MakeMyTrip (NASDAQ:MMYT).

This time travel research process can also explain my personal investments in JD.com (NASDAQ:JD), Hutchison China Meditech (NASDAQ:HCM), Zai Lab (NASDAQ:ZLAB), Lepu Medical (the likely version of China’s Medtronics), Aier Eye Hostpital, Di’an Diagnostic (the likely version of China’s Lab Corp) and a few other companies.

One challenge in this time travel strategy is that many of the likely winners are not publicly traded yet. And if you are not Hillhouse and the like, it would be hard to invest in the Pre-IPO funding rounds. Hillhouse has built a very powerful positive feedback loop in its structure that’s extremely difficult to replicate.

My aspiration is to continue to follow this time travel research method and eventually figure out a way to participate in early-stage funding rounds so that I can also be part of the value creation and value connecting process.

Of course a key requirement to carry out this strategy is to have a multi-culture background. Without knowing the Chinese language and culture, it would be impossible to play the Hillhouse time travel game. In this regard I consider myself extremely lucky because of my Chinese background.

As you can probably tell by now, in this phase, the time and effort required is substantially more than the previous phases. But the reward could also be substantially higher.

Disclosure: Long JD, HCM, MMYT, ZLAB, Lepu Medical, Aier Eye Hospitals and Di’an Diagnostics.

About the author:

A global value investor constantly seeking to acquire worldly wisdom. My investment philosophy has been inspired by Warren Buffett, Charlie Munger, Howard Marks, Chuck Akre, Li Lu, Zhang Lei and Peter Lynch.

Rating: 4.9/5 (12 votes)



Bigzoo - 11 months ago    Report SPAM

Interesting evolution, thank you for sharing.
I am wondering if you could share a couple of thought about HCM. I just had a quick look at the numbers and I see a lot of negatvive numbers in the financials, yet the company's stock price has increased 150% in a year.

thank you.

Xzhao10 - 11 months ago    Report SPAM


I think Mr. Zhang Lei is actually a venture capitalist.

Venture capitalists look for emerging markets. The source of the emerging markets could be geophysical (apply new idea from one country to another), transformational (adapt military technologies for civilian use), or best yet, a brand new idea with commercial value that no one else has had on earth.

Just some random thoughts.

All the best,


Grahamites premium member - 11 months ago

Bigzoo - HCM, BeiGene and Zai Lab all have ugly Current financials but I think they represent the best of China's future biotech, or they possess the traits that can make them potential future biotech giants. Those traits can't be explained in numbers and also can't be explained in a few paragraphs. But I would say this - if you study how the best U.S biotech companies have grown, and you compare what HCM is doing to the history of the U.S biotech giants, you might find some similarities. And because China's the world's second largest pharma market and the government has a clear preference of domestic manufacturers, it's not hard to imagine HCM, Zai Lab and BeiGene to dominite in their respective area of focus. And they'll be coming to the U.S market and compete with the best U.S companies. I can't put a precise value to that but I know if you add up HCM, ZLAB and BGNE's market cap, it's less than 1/30th of JNJ:)

Grahamites premium member - 11 months ago

Xing - Good points, True Hillhouse can be thought of as venture capitalists, and so are Sequoia or Softbank. I'm not sure what you mean by applying military technologies for civilian use though. Would you explain what you meant?

The Science of Hitting
The Science of Hitting - 11 months ago    Report SPAM

Great stuff Grahamites. If you're looking for some new material, would be fascinated to hear your thoughts (even at a high level) on the Indian OTA market. Keep up the great work!!!

Xzhao10 - 11 months ago    Report SPAM


Products serving one market can be converted/reformatted to serve another untapped/emerging market. For example, GPS and Tempur-Pedic.


Zyl41 premium member - 11 months ago

Excellent thoughts! What a great name - time travel, it really captures the essence of this method. It seems to be the key to this approach is the ability to see the big waves earlier or deeper than others, since basic human nature is more short-term and only believe it when seeing the result. Of course it takes courage to believe the big waves and so having a precedent (e.g. it already worked in US) could be extremely valuable for the confidence. Thus I think your time travel method can be expanded to a broader sense, not just from developed country to emerging markets, but also includes other things (e.g. seeing the potential of FB earlier than others due to it being fundamental game changer on online advertising, or other things Xzhao10 mentioned, or seeing the potential of Twitter due to the FB precedent.) BTW, the ARK website you recommended before is very useful, I learned a ton from it. I think they have a similar approach. Two questions: 1. Don't you think the time travel method is actually less work, since you are more focused on the big trend not the detailed numbers and accounting? 2. Is it really necessary to go into Pre-IPO space to capture that time travel premium? Going into Pre-IPO market needs more personal networks and carries extra costs. Isn't there already a lot of opportunities in the secondary market, like Catherine Wood mentioned in one of her videos? Thank you!

Grahamites premium member - 11 months ago

Science - Thanks for the nice words and article ideas. I might write about the OTA space in the future. May take multiple articles though:)

Grahamites premium member - 11 months ago

Xing - Got it. Very interesting. Thanks for explaining.

Grahamites premium member - 11 months ago

Zl141 - Thanks for your detailed comments and thanks for the questions. I think getting in early in the wave is a different game than time travel. With time travel strategy, you are taking what's been proven in one market to another whereas in the example of FB or Twitter, the model is still relatively nascent and there's more risks involved. With regard to you question. 1) It's a great question. I've never thought about it. But I can see the argument that it's easier because if you see the big picture then all you need to do is to invest in those companies. But then the question becomes how do you see the big picture and how long does it to gain conviction? And you also have to figure out whether the trend can actually be applied to a specific country. For instance, you can say well India is even further behind in TMT so we should find the next Google in India. Well, you can't find one because there's a confluence of factors that makes it easier for Google to dominate India than China. So it seems like it's less work but I'd argue seeing the big picture takes more time. 2) It's not necessary to go to the pre-IPO space. There's plenty of time to invest after IPO. But for some private companies, such as AirBnb or Didi, you can't participate if you are only in the secondary market. Of course you can choose not to invest in those companies.

Eguruguy premium member - 11 months ago

Dear Grahamites;

You are amazingly prolific. Thank you for sharing your ideas and thoughts. In a world of 72 emails a day pimping the next stock that is going triple over the next three months, it is refreshing to hear about a process, a system, and the acknoledgement that this is not too difficult, it just takes time and effort.

Good on you.

Salve Lucrum

Hurrah for Proftis

Eric.yeeth - 10 months ago    Report SPAM

Hi, can you share your findings on why Priceline is more successful than Expedia? Many thanks

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