Investment levels, perspectives, and roles - Top-tier cryptocurrency digital asset exchange platform

I want to discuss the levels of investment and how to determine perspectives. In investing, I have previously talked about conducting various analyses, such as financial analysis, corporate operational analysis, and so on. For example, DuPont analysis, profit margins, turnover rates, leverage, and key growth factors are part of operational analysis. However, many investors limit their analysis to this level, namely financial analysis, such as quantitative analysis through financial statements, or what is called operational or qualitative analysis, which remains at this level. This is actually incomplete.

I personally believe these are technical details. Especially, financial analysis is purely quantitative, while operational analysis is mostly qualitative, such as analyzing the industry and the company. I think there is another fundamental aspect: analyzing the management team and corporate strategy. Why do I think so? Because you need to establish your role; your role determines your perspective. This is very important because when we buy tokens in the crypto market or stocks, we are essentially buying a company.

We are the token holders or shareholders of the company. The tokens or stocks we purchase are not just symbols; they represent ownership of the company. This is a tangible reality—there are physical assets, employees, management, and products. We are owners of the company, not operators. The company is run by a management team. It’s like investing in a restaurant: the operators are the general manager, waiters, chefs, lobby managers, etc.

However, after purchase, casual management is not enough. You need some understanding of the industry. For example, if you buy a Sichuan or Cantonese restaurant, you should at least understand the restaurant industry. How does this sub-industry operate? What are their competitive advantages? How do they make money? Each restaurant has different revenue models. What is your competitive advantage and positioning? Some restaurants target high-end business clients, others offer affordable services, and some focus on student takeout.

Some make money from location, some from cost-performance ratio, some from class or quality. So, you need to understand this industry well. Later, you should also understand the positioning of the company. You need to know what the company’s competitive advantages are, how they make money, where their weaknesses lie. You should be familiar with the invested company, but you are not an operator, so you don’t need to know how to cook the dishes, set the tables, or place advertisements—that’s not your job.

By clarifying our role, although we build our own circle of competence and understand the industry, we are not operators. The operators are professional managers. Therefore, we should not micromanage the company’s operations or pretend to be insiders. We are not in the business of management; our circle of competence has not reached that level. If it did, we might as well start a business ourselves. So, for product development and operations, don’t focus too much on details.

Many people focus excessively on details and then criticize the management team. Actually, even the worst management teams are usually more capable than you. Most investors lack specific operational knowledge and are not as knowledgeable as actual managers. Because managers make a living in this industry, don’t be overly arrogant.

At the same time, as owners of the company, you need to pay attention to the management team. Their motives may differ. Are they honest? Do they embezzle company funds? Do they inflate reports? Do they cook the books? Use financial knowledge to judge their integrity and capability. So, you need to build your own circle of competence: understand the industry, know the positioning, and understand the competitive advantages. As investors, we should learn about these aspects. Although we do not run the company or know how to implement management strategies, we should at least understand some operational information.

If the management team is terrible or has issues with capability or integrity, do they follow through on their promises? Are their corporate management strategies correct? They don’t need to go into too much detail, but at least they shouldn’t do absurd things. For example, if they originally run a restaurant but suddenly decide to open a hair salon to make money, that’s an absurd decision. Like Maotai or Wuliangye, which originally made good liquor but then ventured into real estate—such a foolish decision. Although they are good companies, they shouldn’t mess around like that. But if they propose opening a liquor department outside the restaurant business, that might be a more appropriate decision.

These common business sense principles can also be applied in investing to verify whether the management team keeps their promises. For example, if they plan to open a new chain store, look at the financial statements to see if they have invested in this area—whether they’ve opened stores through franchising or self-operation, or expanded the company. Did they follow through on previous commitments? If they say one thing and do another, as a restaurant owner, you would fire the manager because their actions don’t match their promises.

Additionally, assess the management’s level: do they talk big but lack substance? Are they focused on store operations? Some managers spend their time giving speeches, doing interviews, donating, or managing charities. Unless they do these for publicity, if they are just satisfying personal needs, they might not be focused enough. They may be good people but not good managers.

So, when analyzing tokens or stocks, observe company news and look for clues to judge whether the management is honest, low-profile, diligent, or showy. A flashy person is unlikely to successfully run a business; they might be a good speaker but not a good entrepreneur. When choosing a company, you want management that is diligent, low-profile, and capable of running the business well.

How do you know if a company is doing well or not? That’s when you look at financial analysis. Use financial analysis to evaluate the company’s operational status—whether it has competitive advantages, how its gross profit margin compares to peers, how well costs are controlled, whether related expenses are higher or lower than competitors. This allows you to make judgments. For operational analysis, consider turnover rates, whether steps are correct, how the operation is going, whether the short-term products are prone to spoilage, stockouts, etc. These can all be seen through financial indicators.

Therefore, for investors, it’s important to determine what to do and what not to do. Also, don’t fall into the trap of thinking that financial and operational analysis alone can fully assess a company. Sometimes, observing the management’s words and actions can give you an idea of what kind of person they are. Based on your life experience, by observing the company’s history, you can understand the traits of great entrepreneurs. If the management’s behavior doesn’t match those traits, you should exclude them—don’t do what you don’t understand.

If the management team meets your standards, they are likely to be excellent. A company is like a ship, and the captain is especially important. Different captains can lead the ship to different fates—some may cause it to sink like the Titanic, others may bring it safely to port. The captain’s ability is crucial.

Whether it’s operational analysis or financial analysis, only when based on correct management and strategic direction can you analyze operations and finances. Because technically, this takes considerable time. So, I want to share that the level of investment analysis should not be limited to technical aspects. Many Chinese, especially STEM guys, tend to rely solely on technical skills—they look at financial statements and start financial analysis.

Financial analysis alone cannot identify great companies; it only confirms their greatness. Usually, a great company requires good management or a strong corporate culture (except for companies like Maotai, which are inherently great businesses). These need to be confirmed within your circle of competence, and you should also consider the company’s development strategy. This depends on your understanding of the industry. You don’t need to delve into management and operational details, but the company’s development strategy must align with your understanding.

Therefore, you need to study the industry’s competitive landscape, success factors, and characteristics, then see if the management’s strategy matches your understanding. Of course, you might have cognitive biases, so you need to put in effort to learn—this is part of your circle of competence. When you look at management’s strategy, if it’s correct, it’s hard to judge; if it’s wrong, it’s easier to see. Recognizing wrong strategies is relatively easier.

For example, if someone previously ran a restaurant well and suddenly changed strategy to open a hair salon, you know that’s an absurd strategy—easy to identify. It’s easy to see when someone makes a mistake, but hard to see when they are doing the right thing. This acts as a filter—filtering out poor management. Ultimately, it’s about the captain’s ability. Because when you buy a company’s tokens or stocks, the company is like a ship, and the captain controls it.

So, the key is to assess the captain’s ability, like the old saying: “Trust in the person you employ; doubt the person you doubt.” Before you rely on someone, you must question whether they are right. Once you trust them, don’t doubt their actions. For example, how the restaurant owner arranges the details—what menu to serve—is not your concern as an investor. That’s operational work for the manager. Since you’ve already trusted and evaluated the manager, that’s enough.

In summary, as investors, we should know what to do and what not to do. What should we do? Find good industries and good businesses. For example, if the restaurant industry is doing well and you think a Sichuan restaurant is competitive and profitable, invest in that restaurant. If they cook fake accounts, you can tell. If their profit margins are much higher than others, and they boast wildly but don’t work hard, and their financial reports look good—much better than others—you should be suspicious of fraud. Comparing with other businesses, if their reports aren’t as good as yours, then you know they’re faking.

A little investigation and cross-checking with the financial statements can reveal the truth. Many say they keep losing money, but most Chinese listed companies’ fraud techniques are not that sophisticated; most frauds are detectable. Not everyone can hide it. So, as an investor, you need basic financial knowledge to analyze financial statements. Read more related articles, browse articles on Xueqiu, and you’ll get a sense of the company’s true situation. Then, analyze the management team carefully. This is what we should do. We need to learn how to identify good industries and management.

Next, examine whether their strategy is reasonable—are they doing service, self-operation, or franchising? Are they targeting high-end or low-end markets? Once the direction is set, does the management’s approach align with it? Poor management often chases trends and is unfocused. Lack of focus is bad in investing. Life also requires focus—on marriage, career, and doing one thing well. Focus is a virtue. You can see these qualities.

Finally, after choosing the right industry, good business, and capable management, you can then analyze operational details, profit margins, turnover rates, leverage, growth factors, and financials. Technical analysis is just about confirming these details—verifying management, good industry, and good business. Your choices should be based on this confirmation, not just listening to others’ hype or management’s random words. As investors, we must be very clear about our role.