China’s Patient Investors

BEIJING – A common sentiment among investors in China is that the best way to make money is to trade frequently, lest you end up holding the short straw. But, in my experience, buying and holding great businesses is the only way to achieve excellent returns.

Other investors often tell me that they would like to invest for the long term, but that their fiduciary duty to their clients bars them from doing so. There is some truth in this sentiment. Great long-term investments are simple in theory, but difficult to execute; they will undoubtedly test your patience and resolve, especially if you face steep interim losses.

That is why a successful long-term strategy requires the backing of investment partners who trust you and are willing to be patient. Fund managers who are under constant pressure to post profits or defend short-term results cannot afford to invest with entrepreneurs building businesses that are optimized for the next ten years, rather than for the next quarter.

My firm’s relationship with the founders of the detergent maker Blue Moon, Luo Qiuping and Pan Dong, exemplifies this idea. In 2006, their company was a leader in liquid hand soap. Their business was growing organically, and Luo and Pan were not looking for investors. But we kept in touch with them, often sharing our thoughts on the global household/personal-care industry.