Thread by @sebidscap

Xiaomi thread.
$1810.HK.

It's funny that Xiaomi mentions the Fortune 500, because every year I study the Fortune 2,000 list and simply think about which companies are likely to move up in their ranking. It's stupidly easy, but highly effective.

"Xiaomi is 10 years old, already number 468"->more to come?

Xiaomi's R&D, like with so many interesting companies, just continues to grow. They will have RMB10bn in 2020, and they plan on investing RMB50bn in R&D over the next 5 years at least.

Wonder how effective ~$1.4bn is in (mostly) China, based on differences in GDP per capita.

Taking headline numbers, GDP per capita is >6x higher in the US vs China. If R&D is even 3x more effective, it's as if Xiaomi is spending ~$4.2bn on R&D.
As always, better roughly right than precisely wrong.

Would surprise me if someone thought Xiaomi's $1.4bn is less effective.

* entering premium tier smartphone market
* Selling 5G phones for ~$281. Seems pretty cool

(Makes sense in a market that will have a couple hundred million 5G phones in a couple of years because no other country comes even close to China's 5G infrastructure investment)

Current sentiment about 5G seems hesitant to me. I see many more articles downplaying 5G vs hype, agreed?

No idea how reality looks like here, I'm too conservative. I'll form my own opinion many years out, no need to get this right. China + companies certainly heavily investing.

I've read dozens of recent Chinese companies calls, and I've already tweeted weeks ago that it very much looks like as if Chinese businesses have much less uncertainty rn vs US businesses or global economy. Somehow.
Xiaomi's comments same tone.
Generally, not much complaining...

I love weird metrics like "number of users who have five or more devices to Xiaomi's IoT platform". 4.1mn hardcore fans, it seems. Growing 77% yoy.

Personally, I'm at two Xiaomi devices. E.g. a great & fast Mi Pad 4. All-in for less than $200 via joybuy.com... :)

Always interesting to find something unique in a business, e.g. Xiaomi's commitment not to make more than 5% net profit with hardware. Sure, marketing. But also Amazonian.

Capitalism and communism are converging for good if you truly share scale benefits long enough. Love this.

Another interesting quality is that Xiaomi is leading in India now for 10 quarters. Mental model: Respect those companies that can win a market like India, as it is a tough one. You couldn't do this without long-term thinking or a defendable strategy (e.g. great value-for-price)

Inventory turnover down to 54 days.
Adjusted opCF of RMB27.1bn in 2019.
Cash resources (btw useful definition) to RMB66bn.
290 investee companies with RMB30bn "value".

-> Pretty awesome balance sheet, huh?

Calling out ecosystem partner model as strategy. Relevant for e.g. $HMI.

Detail: Whereas $HMI and $VIOT went public in the US, Roborock listed in China. As Xiaomi announces that more investee companies will go public, it's interesting to me where they'll list and how to interpret this.

"pledge" is also the kind of word that's being used in contexts of people that possess superior capital allocation skills. E.g. The Giving Pledge.

On this page, you can find a 50 page results announcement (can recommend, is better than reading 4Q19 transcript, which is something I like a lot, because I like companies that communicate well via texts):
company.mi.com/en-us/ir/index…

Direct link to PDF: i01.appmifile.com/webfile/global…

I read those 50p, I liked: Most of Xiaomi's employees hold share-based awards. From an investor's perspective, that's cool, because being aligned with actual owners is one of the best setups out there.

Any other interesting companies where over 87.75% hold share-based awards?

Xiaomi so far also a savvy timer of their own buybacks! Rare to see this.
Just see this crisis: So many companies bought >2x higher and now stop buying back. Non-sensical & destructive. m)

Xiaomi paid HK$9.2 on average. Already profitable for them! Meaningful amounts at >$400mn.

-> Interesting company to watch.

Long <<1% of portfolio, way more $HMI.
Just feels like a decent company guided by a great mission, with good optionality run by Founder CEO with skin in the game... >RMB200bn revenue already in year 10 after founding makes me want to see year 30!

Are those miniscule positions worth it? Resounding yes. Just try it out. Means that you must be roughly right.
Enforces simplicity and effective filters in the first place. Saw too many smart folks going down 50% on big positions, really weird but _extremely_ common occurance.

If Xiaomi would drop 50%, I would have owned it for a while, followed it closely (reading their filings, watching YT reviews, reading all calls puts me in what decile among investors? No way it's bottom half, market just doesn't feel that intelligent), would happily buy in size.

Contrary to narratives, portfolio management is a decent amount of Macro in the sense that while we think of it as Micro, a single company at those sizes is Macro enough that we don't really know its micro-level.
Micro is an aspiration, really a great ideal, but also a narrative.

Knowing companies well just really doesn't compare well to e.g. a small town where you simply buy the best five businesses and aren't worried too much about them. Nice metaphor, but doesn't work for common folks or in real life in general.

Scale-dependency.

So, you kind of have to study essentially the top 1,000 most interesting businesses. Can one call this micro? No idea!

I think the fault lines aren't micro vs macro but concrete versus abstract.

Macro traders usually just trade abstract numbers, which is close to insanity.

My approach is to study as many businesses as possible, on all levels, to understand as much as I can. That's as concrete as possible, because I'm constantly reading, writing, remembering, connecting, adding (and removing bad ideas), but it still is close to absurd. But works.

Paradoxically, "micro" gets easier in large cap companies because being roughly right gets easier. Not because we truly understand companies with almost 20k employees. But data points align well enough with complete understanding of reality and its trends.

Not even sure large caps are followed more closely proportionally(!) to their size.

Proportionally, some microcaps are followed 100x more closely...
Based on e.g. FinTwit experience, that's true, right?

So many things in investing are not intuitiv.
Large cap = edge is one.