It's been six years since the Chinese stopped showing up for lunch with Warren Buffett.
On June 6, Andy Chua of Singapore became the envy of Chinese business people when he won the chance to dine on steak with the legendary investor for the princely sum of $2.16 million.
Looking back, the winning bids of Duan Yongping, founder of the BBK Electronics Corp., and Zhao Danyang, the godfather of Chinese private equity, are still a source of pride: Duan set a record at $620,100, and two years later Zhao pushed the auction up to $2.11 million.
The extravagance of those two Chinese stunned the world, and even Buffett himself was impressed. Every year there is murmuring to the effect of "Maybe this year there will be another successful Chinese bidder…."
In reality, since Zhao, no Chinese has gone public in a bid to secure lunch with Buffett. So just what has quelled Chinese businessmen's hunger to pay for the pleasure of breaking bread with the investment guru?
Surely it can't be that in the economic downturn, they can't afford it. No matter how bearish the A-share market, only the small and middle-scale investors get burned. Chinese dama mopping up Wall Street, tourists overrunning the Champs-Elysées, and the Chinese investors buying up Manhattan have ensured the fact that the Chinese are "flush with cash" has been recognized the world over.
Furthermore, the worse the economic conditions, the bleaker the outlook in the stock market, and thus the desire for expert guidance becomes ever greater. In the history of Buffett's auction, the highest bids have tended to appear when the economy is in a slump, such as in 2008, when Zhao seized the lunch after the stock market plunged below 6,000 points. The highest-ever bid of $3.45 million appeared just as the European and American economies entered a recession.
If money isn't the issue, is it that the lunch itself fails to whet the Chinese business world's appetite? Could it be that since, according to the rules, they can't discuss individual stocks, Chinese businessmen just aren't interested in a place at the table?
Even though winning bidders are encouraged to discuss their family and their life, not their investments, it seems poor value for money indeed not to get a little return on those millions. When Zhao met with Buffett, he took the opportunity to recommend Wumart Stores Inc., and Wumart's stock price rose nearly 24 percent in four trading days. Because of that, no discussion of individual stocks became the rule, so perhaps for opportunistic Chinese, the value of this steak lunch fell a notch.
Or perhaps, Buffett's philosophy of value investing doesn't work in China?
Buy something worth 1 dollar for 40 cents—Buffett became as rich as he is today by sticking to value investing. However, it is increasingly doubtful whether this trick works in the Chinese stock market. First, Buffett's method is to search for quality companies that will maintain profits and growth by analyzing their financial statements, then buy in at below intrinsic value. But with the "packaged listings" popular with A-shares, it is hard for investors to understand a listed company through financial statements alone. Second, the high issue price and high valuation of A-shares make it difficult to buy in at a discount. In 2000, Buffett bought into China National Petroleum Corp.'s (CNPC) H-shares at the bargain price of less than HK$1.2 per share. When he sold after seven years, the stock price had risen to HK$13. Even excluding dividends, profit was tenfold in a classic example of value investing.
However, CNPC's A-shares issued at 16.7 yuan ($2.68), more than 12 times the price of its H-shares, and the opening price even reached 48.6 yuan ($7.8). In the same company, an investment in A-shares would have incurred a loss, and a long-term investment would be suicide.
Aside from the difficulty of finding good companies at cheap prices, the volatile nature and roller coaster trends of the A-shares discourage long-term investment by the faint of heart. In addition, the uniqueness of government policy and speculation in the Chinese market doesn't allow one to "toss the computer and ignore the chart." Under such conditions, "value investing" is no more than a veil of shame for investors trapped deep in the stock market.
In addition, the decline in interest in Buffett's lunch suggests the end of the era of "stock worship." In the past few years, the explosion in the property market had attracted investors' attention, and last year's unveiling of Alibaba's Yu'ebao personal finance product further snapped investors out of their reverie. Now, whereas investors used to throw all their money into stocks, stock trading has gone from à la mode to somewhat taboo. Fads come and go, the era of stock worship is over, and the investment guru has thus lost some of his luster.
All guessing aside, there's a very slim chance of winning a lunch with Buffett. That the Chinese took two of the world's 15 seats is impressive enough, but is that lunch tab really worth it? On the macro level, its value may be related to building national morale or faith in the stock market. On the micro level, it's only a steak that may or may not be to one's liking, a chat that may or may not lead to investment returns, and a photograph to show off in the living room. Isn't what the investment guru has been teaching us precisely this kind of common sense?
This is an edited excerpt of an article by Zhang Bin, a financial editor at Sohu, originally published on Sohu.com, translated by Kieran Maynard