W09 - A Thinking Framework for Market Extremes

A week before the Spring Festival, I began seeing a lot of turmoil around Meituan; market sentiment had sunk to rock bottom. Public accounts were filled with hype from various self-media; watching some powerful PR teams’ clumsy tactics—and then reading a strategic analysis that looked like an intern had used AI to write it—I decided to block out that environment and read something unrelated to work.

After the holiday the noise remained. Avoidance isn’t a solution; to steady myself and return to focus I needed to organize the thoughts in my head. Coincidentally I had some time to reflect, which helped me strip away emotion and try to think from a neutral position, seeking anchor points and observable beacons so every choice can be replayed and reviewed.

Aesthetic preferences

I’m particularly fascinated by companies that survive across a century—those that persist through cycles, grow through each upheaval, and ultimately become world-class. This preference strongly influences my everyday consumption and investment decisions. China’s modern history is relatively short and its economy experienced several ruptures, so such companies are rare here. That doesn’t stop me from looking for firms and leaders with that cycle-transcending temperament. Take real estate: Hong Kong capital has sharp vision. Real estate has already undergone full long cycles, and many sectors that can weather bulls and bears are backed by Hong Kong capital.

Things that once felt fancy used to excite me; now I prefer simplicity, focus, and steadiness—closer to the essence of value. Two websites with extremely high signal-to-noise ratios come to mind. One belongs to an investment firm managing trillions in assets,Berkshire Hathaway’s official website, whose pages still retain the crude feel of 1990s HTML; value investors worldwide read Buffett’s annual letters to shareholders here. The other is from the godfather of Silicon Valley entrepreneurship, the soul of YC,Paul Graham’s blog , and the site he founded, Hacker Newshas also kept that minimalist style, becoming a high-purity forum for technical people around the world.

Judging a company’s quality

1. Company culture. I’m willing to spend my time and money on companies that stick to their duties; even if I lose out, I accept it willingly.

Retailers all say they want speed, quality, and low cost, but their actions differ: some pursue the flashy, some pursue control, some pursue good value. In today’s weak consumption environment, Sam’s Club China still managed 40% growth. Retailers that survive cycles have a grounded operational temperament. Cheap always beats expensive; fast beats slow. For Chinese retailers, whether their operating temperament more closely resembles Walmart, Costco, or Amazon is a decisive factor.

2. Business model. Essentially, it’s the operational logic by which a company creates value, delivers it, and captures profit.

Corresponding to Meituan’s internal “three commercial elements,” a business model answers three core questions: what unique resources the company relies on to stand its ground (core customers and key businesses), how it builds barriers to avoid being toppled by competitors (core capabilities or moat), and what efficient mechanisms it uses to continuously convert those resources into real cash (monetization model).

I discussed China’s top 10 internet business models with ChatGPT 5.2, Claude 4.6, and Gemini 3.1. The preliminary conclusions from the three AIs were largely consistent. Ultimately I chose to dive deeper with Gemini, because it felt like talking to a knowledgeable person—its answers formed thoughtful passages rather than flattering or obedient replies, and they weren’t just a list of bullet points.

In my exchanges with Gemini I realized the need to strictly separate two concepts: the depth of the moat, which determines whether others can easily defeat you; and the comfort inside the city, meaning how easy it is for you to make money—essentially, the quality of the business. My conclusion is that Meituan sits like a barbell across these two dimensions—one extreme excellent, the other quite poor. That is precisely where controversy and opportunity lie.

I won’t share the original conversation to avoid priming biases; I welcome different rational voices to discuss it with me.

Freeing yourself from manipulation

An example in The Frameworks of Thinking (Thinking in Frameworks) helps explain why people are prone to information manipulation.

In a 1982 paper, psychologists Daniel Kahneman and Amos Tversky proposed the famous “Linda problem.” Through this experiment they exposed a human tendency: we’re heavily influenced by vivid evidence at hand and may make judgments that contradict simple logic. We draw conclusions based on the information we currently hold. If an unrelated factor happens to appear near something we already believe, we can effortlessly link them together.

On how to truly beat the market, I want to quote two value-investing masters. Graham said that to succeed in the securities market people must first think correctly and second think independently. Buffett similarly noted that lifelong investment success doesn’t require top-tier IQ, extraordinary business instinct, or secret information; rather, it needs a sound thinking framework as the basis for decisions and the ability to control one’s emotions so they don’t erode that framework.

First principles and second-order thinking are tools to escape herd mentality and cultivate independent thought. They make thinking deeper and more indirect, helping us filter out 99% of illusions in the information flood. I learned this from the books The Frameworks of Thinking and The Most Important Thing.

Key macro beacons

Keep a close eye on consumption, with price signals as the primary guide. Stop over-relying on manufacturing and investment; start relying on the populace. The future path is a decisive shift toward a consumption-driven model. That means replacing large-scale industrial subsidies with a stronger social safety net so households feel confident to spend rather than hoard savings against uncertainty.

Assuming macro conditions can continuously improve along the intended path, what does that mean for retail? Is instant retail pro-cyclical or counter-cyclical? It’s obvious, but the biggest uncertainty is whether that assumption holds. Next week I will watch how resolute the Two Sessions’ language is.