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A Single Ladle from A Flowing Stream
Long-term investing requires patience and discipline from all players in the ecosystem.
One of Hillhouse’s guiding principles is a phrase borrowed from the 18th-century Chinese classic novel, Dream of the Red Chamber. The phrase translates roughly into, “Out of a flowing stream, I need only a single ladle of water.”
Most entrepreneurs suffer from the problem of having too much choice rather than too little. They are surrounded by innumerable “opportunities” that offer the promise of a quick buck. The willingness of the exceptional entrepreneurs to focus and delay gratification in the wholehearted, almost ascetic pursuit of a greater long-term mission is what inspires me to keep investing. This principle applies to Hillhouse as well. Investing in equity, the residual value of a business, over the course of several years or decades forces decision making in the face of strategic ambiguity and requires a specific mind-set.
The intersection of great ideas and exceptional people is, by definition, rare. When we find great entrepreneurs, we do all that we can to help them build their companies. This is not completely altruistic. For one thing, helping a company define strategic direction reduces our investment risk. Second, helping our existing entrepreneurs extend their franchise value by reaching new markets and deepening competitive moats means we can stay invested for much longer. We are lucky to have three or four new investment ideas a year, so reducing or eliminating the need to “change horses” drives compounded returns over the long term.
Zhang Lei’s views originally appeared as part of a longer essay entitled, A Single Ladle from A Flowing Stream, published as part of Perspectives On The Long Term , a 2015 publication by Focusing Capital on the Long Term (FCLT). FCLT is a global initiative for advancing practical actions to focus business and markets on the long term, founded by the Canada Pension Plan Investment Board and McKinsey & Company.