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CoStone Capital Chen Yanli: Avoid Those Who Go Against the Trend

2016.07.07 CoStone Capital Views:


CoStone Capital Chen Yanli: Avoid Those Who Go Against the Trend

“We will stay away from those who go against the trend. Never hold a piece of ice on your hands in a hot summer.” said Chen Yanli. “Investment relies on the fundamentals. We only dig in what we are familiar with and eliminate information asymmetry by conducting a large amount of investigations. Then we can find the enterprises with a margin of safety. Be certain about the downside potential of an enterprise. If it has less downside potential, it will have more upside potential. In 2013, as the valuation of some companies in the secondary market was lower than the PE price, CoStone moved fast to initiate a PIPE fund. When the market was unappreciated, the fund gained the most profits. We prefer the project with low risks and moderate gains.” he continued.

When it came to the shrinkage of crossover private placement, Chen Yanli indicted that, the stocks in some popular sectors were hyped up, whose valuation were unreasonable for private placement and the secondary market. CoStone would not be a part of them if their valuation remained unchanged. When asked about which industry would be most promising, Chen Yanli suggested that the leading companies in every industry like medicine and consumer goods would be most likely to gain long-term benefits.

Chen Yanli believed that if one knew the reasonable valuation of a stock, he must know the market timing well. Avoid impulsive investment and never go all-in on anything. The bubbles always blast in the end. The value of all assets in the financial market would rise again after a fall.

At present, the amount of private placement in A share topped ¥1 billion ($154.834m), with more than 3,000 agencies competing in this market. CoStone Capital has managed nearly ¥2 billion ($309.669m) private placement this year.

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Above: Excerpt from the interview with Chen Yanli, co-founder of CoStone Capital from Shenzhen TV. Please refer to this link to view the interview in full:

Rewritten by: Luo Xinying, Edited by: Du Zhixin, Wei Yiyi


The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.

Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.

Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.

Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.

These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.

For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, making Huawei anindustry leader.

So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.

At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across


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