When the practice stops being something you do, and starts being someone you are.

This article completes a trilogy.

The first, “Connecting the Dots: Parallels Between Reiki, Investing, and Life,” was written after my Reiki (霊気) Level 1 training. I had just learned to channel the universal life force, and fourteen parallels to investing and life emerged from it.

The second, “Beyond the Dots: Deepening Parallels Between Reiki, Investing, and Life,” came after Level 2. There I learned to direct that energy with precision across space and time, and seven deeper reflections emerged.

Level 3 is different. There is nothing left to direct.

In Level 3, Reiki shifts from being an external tool to an internal state. It no longer sits in our hands but becomes part of our consciousness, fostering true embodiment and deeper mastery. Reiki is becoming.

The same thing happens in investing. Early on, your process is a checklist you consult. Later, if you are fortunate and patient, it becomes a temperament you carry.

A framework you still have to look up is not yet yours.

PS: These remain the reflections of a student, not an authority. The Reiki Master symbol is sacred and not mine to share. The wisdom underneath it is.

1 | From using to embodying

Reiki: In the earlier levels, we invoke. We prepare, we position, we begin. In Level 3, the relationship turns symbiotic. Reiki amplifies your inner light and dissolves the layers that obscure your true nature. The practice moves from intellectual knowing to embodied awareness.

Investing Parallel: Every investor starts with a checklist. Revenue-growth, profitability, insider ownership, founder-led, recurring revenue. You tick the boxes because you do not yet trust yourself. Then one day you open an annual report and you know within ten minutes. Not because you skipped the work, but because a decade of work has been absorbed into instinct. The checklist did not disappear. It became you. This is also the danger. Instinct earned through repetition is wisdom. Borrowed convicton from someone else is gambling.

Life Parallel: Nobody who is genuinely kind reminds themselves to be kind. Nobody who is genuinely honest weighs the options first. Character is what remains when the effort of performing it falls away. Everything you have to try hard to be, you are not yet.

2 | Surrender is strength, not weakness

Reiki: Reiki is a journey of surrender, not control. But true surrender does not arise from helplessness. True surrender arises from empowerment. You surrender because you know you could act if you needed to, not because you have no other choice. When you stop trying to control every step, you become willing to be led.

Investing Parallel: Doing nothing looks like the easiest thing in the world. It is the hardest. Sitting through a drawdown in a business you own, watching the price fall week after week, and choosing to touch it is the most active decision available to you. It only counts as surrender if you had the ability to sell and chose not to. Paralysis and patience look the same from the outside. From the inside, one is fear and the other is work already done. The tell is whether you could have sold.

Life Parallel: We admire people who let go. We rarely notice that the ones who let go gracefully are the ones who could have held on. Surrender without capability is resignation. Surrender with capability is trust.

3 | Dissolving the ego

Reiki: The practice dissolves the identities we mistake for ourselves. The layers of who we think we are, built from titles, achievements, and the opinions of others, obscure what was already there. You do not build a true self. You uncover one.

Investing Parallel: Your returns are not your worth. This is the hardest lesson in the profession, and it never stops needing to be relearned. When performance is good, ego whispers that you are brilliant. When performance is poor, ego whispers that you are horrid. Both voices are the same voice. Both are lying. In a difficult stretch, the temptation is to change who you are to make the pain stop. To chase what is “working”. To abandon the philosophy at the exact moment it is being tested. The investor who has separated identity from performance can hold their philosophy through the drawdown. The one who has not will sell their philosophy along with the position.

Life Parallel: Everything you use to answer the question “who am I” can be taken from you. The job. The performance. The body. The role. Whatever is left when those are gone is the real answer all along. Better to find it before life removes them for you.

4 | The power of only now

Reiki: Reiki brings awareness to the present moment. You cannot change the past. You cannot control the future. You can only act now.

Investing Parallel: The only capital allocation decision available to you is today’s. Every other one is either memory or fantasy. The price you paid is gone. It exists in a spreadsheet and nowhere else. The only question that matters is whether you would buy this business at this price today with what you know today. Anchoring to your cost basis is anchoring to a moment that has already passed. Forecasting your exit target price is anchoring to a moment that may never arrive. The market only ever trades in the present tense.

Life Parallel: Anger lives in the past. Worry lives in the future. Both are rent paid on property you do not own. If you can solve the problem, worry is unnecessary. If you cannot solve the problem, worry is useless. Either way, it changes nothing except your energy.

5 | What it is, and what it is not

Reiki: Reiki is osmotic and diffusive. It flows to where it is most needed, not to where you think it should go. It is not a magic fix. We are conduits, not fixers. It is complementary, neutral, and available to anyone willing to receive it.

Investing Parallel: You do not fix businesses. You are not on the earnings call solving the problem. You are not in the room when the product is built. Your job is to allocate capital where it is most needed and then let the people who actually know how to operate operate. Every hour you spend wishing a management team would behave differently is an hour that changes nothing. Capital, like energy, flows to where it earns the best return. Your only real decision is whether to stand in the way of that flow or to move with it.

Life Parallel: You cannot heal anyone. You can only hold the space in which they heal themselves. Parents learn this. Teachers learn this. Anyone who has loved someone through a tough season learns this. The urge to fix is usually about our own discomfort, not their need.

6 | The precepts become the person

Reiki: In Level 1, I wrote about the five precepts. Practice gratitude. Do not worry. Do not be angry. Work honestly. Show kindness. They are repeated daily, as a practice. What changes in Level 3 is not the precepts. It is your relationship to them.

A rule implies resistance. You need a rule because part of you would do otherwise. The precept exists to overrule the impulse. But once the practice is embodied, the impulse is gone, and so is the need for the rule.

You do not remind yourself to be grateful once gratitude has become your default. You do not talk yourself out of anger once anger has stopped arriving. Forgiveness stops being a decision and becomes a reflex.

The precepts were never the destination. They were scaffolding. When the building stands, the scaffolding comes down.

Investing Parallel: Every good investor writes rules. Position size limits. Never average down into a broken thesis. Do not buy what you cannot explain in a paragraph. These rules exist because we are emotional creatures who will otherwise talk ourselves into something stupid. But the goal was never a longer rulebook. The goal was to no longer need it. Discipline you have to enforce is not yet discipline. It is negotiation with yourself, and you always lose those.

Life Parallel: Show kindness even when it is not returned. Hold space even when the other person’s energy is harsh. Everyone you meet is fighting a battle you cannot see. When you understand that, judgment falls away by itself, and you no longer need a rule telling you not to judge.

7 | Mastery is not perfection

Reiki: Mastery is not about being flawless. It is about embodiment, humility, presence, and service. It is about deepening wisdom, integrating more of your authentic self, and trusting the journey as it unfolds.

Investing Parallel: Mastery is not being right. Nobody is right often enough for that to be the standard. Mastery is being unshaken when you are wrong, admitting the error early for the ones you got wrong, writing down honestly what and why you missed, and keeping the same clear head for the next decision. The best investors I know are not the ones with the highest hit rates. They are the ones whose losses do not compound into a panic.

Life Parallel: The people worth learning from are rarely the ones who have it all figured out. They are the ones who stopped pretending they did. Humility is not thinking less of yourself. It is thinking of yourself less.

Concluding words

Reiki is universal and limitless. Healing does not come from it, but through it. When you give, you receive. The more you give, the more you receive. Energy is free, and it is available to anyone willing to tune in.

The same is true of everything worth having. Knowledge compounds when shared. Trust compounds when given. Capital compounds when it flows toward those who create genuine value.

Three levels. Three articles. One arc.

First you connect the dots.

Then you go beyond the dots.

Then you realize you were always one of them.

Thank you to my Reiki Teacher, Svetlana Rao, who teaches Usui Reiki at The Blue Lotus, for the extraordinary Reiki Level 1, 2, and 3 sessions.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

10 Aug 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look for in companies, where we find them, and when we invest. Available via Amazon: paperback and eBook.

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The Transformer architecture has been a breakthrough in AI. As a result, large language models (LLMs) have become increasingly powerful. They can generate human-like text, translate languages, summarize articles, answer complex questions, and even write code.

Their ability to understand and generate text with high accuracy has revolutionized the way we interact with AI.

GPUs were initially designed for 2D/3D graphics and gaming and have become the dominant high-performance hardware architecture for accelerating highly parallel workloads such as matrix multiplications (matmul).

NVIDIA's Jensen Huang believes there is a fundamental platform shift from general-purpose serial CPU computing to accelerated GPU parallel computing. He was right for training. Inference is a different animal. Decode is sequential, memory-bound, and stubbornly serial, and no amount of parallel silicon fixes that. NVIDIA has just proven the point itself by shipping a second rack of chips that are not GPUs.

The Rise of the Attention Mechanism.

In 2017, the Google Paper “Attention is All You Need” proposed a new Transformer architecture, based solely on attention mechanisms, trained on 8 NVIDIA P100 GPUs.

Recurrent Neural Networks (RNNs) process and convert a sequential data input into a specific sequential data output, one step at a time. Because RNNs read one word at a time, training is slow and cannot be parallelized. Worse, as sequences grow long, the learning signal either explodes into instability or vanishes towards zero, and the model increasingly struggles to connect distant words. In short, RNNs are slow, inefficient, and expensive to train, and become increasingly forgetful over distance.

Transformers ended the waiting and unlocked parallelism. Instead of reading one word at a time and passing notes down a slow chain, self-attention lets every word look at every other word at once, and positional encoding keeps track of the order the words came in. Attention decides what matters. Positional encoding preserves order.

That single change fixes what held RNNs back. Nothing gets forgotten over distance. The learning signal stays stable instead of exploding or fading. The payoff is a model that trains faster, connects distant words no matter how far apart, and scales massively on GPUs, which are great at parallel processing.

Freed from reading one word at a time, Transformers could now learn from huge amounts of text faster, cheaper, and better. The same architecture could now expand beyond text to images, audio, and video.

Attention has become the engine that every Transformer runs. It now powers nearly every frontier LLM, closed- and open-weight alike.

The Quadratic Scaling Wall.

Attention has one non-negotiable rule. Every token must compare itself with every other token. It is how each word figures out which others give it meaning.

Now count the comparisons. Token 1 compares with all n tokens. Token 2 compares with all n tokens, and so on. That is n tokens each doing n comparisons. That is n times n, n-squared.

Ten tokens, one hundred comparisons. One thousand tokens, a million. A hundred thousand tokens, ten billion. The work grows with the text squared.

As the context size increases, the attention weight matrix grows quadratically, meaning the number of scores that must be computed and stored grows significantly faster. This leads to higher memory usage and computational cost, making it challenging to scale transformers to very long sequences efficiently.

Such quadratic scaling eventually hits a wall. Each step forward costs more than the last. The first thousand tokens are cheap. The next thousand cost more. The ten thousandth token is punishingly expensive, and it only gets worse.

Fixes have come in three variations. Compute it smarter. Compute less of it. Or replace it. The first two focus on treating the symptoms. The third goes after the disease.

The first fix came via FlashAttention. It computes in small tiles and never keeps the giant n-by-n matrix at once. The compute stays quadratic, but memory becomes linear. That alone made long contexts practical, and it sits inside most models today.

The second fix asks a simple question. If every word does not truly need every other word, why compare them all? Sliding window attention lets each word look at its nearby neighbors. Sparse attention lets each word look at a chosen few. The cost is that a word can miss something far away, so models mix in a few full attention layers to catch the long-range stuff.

The third fix throws attention out of most layers entirely. Instead of looking back at everything, each word carries a small fixed-size memory forward. The memory does not grow as the sentence grows. So the cost is linear, not quadratic. The tradeoff is that a fixed memory can forget or blur important details, which is why pure versions still struggle at frontier scale.

The quadratic wall is real, and no fix has removed it cleanly. So, the frontier settled on hybrids for now. Cheap linear layers do most of the work. A few real attention layers stay to catch what the cheap layers miss. The frontier has settled on hybrids, a truce, not a cure.

Because the quadratic problem was never fully solved at the software architectural level, the industry has been forced to keep compensating with more expensive HBM and more GPU FLOPs at the problem, plus incremental software fixes, especially as workloads shift from training to inference and agentic use cases.

Shifting from Training to Inference to Agentic.

CPUs are built to finish one task fast. GPUs are built to finish many tasks per second. CPUs are great for serial computations, but are architecturally poorly suited for matrix multiplications, which involve numerous parallel calculations.

LLMs are mostly matrix multiplications by arithmetic. NVIDIA did not make GPUs good at matrix multiplication by accident. Matrix multiplication turned out to look exactly like the problem GPUs were already built to solve.

GPUs, which are excellent at parallel computations, have rapidly displaced CPUs in this initial AI infrastructure buildout phase. NVIDIA has been one of the biggest AI beneficiaries, as evidenced by its rapid revenue growth, largely from its Data Center segment from 2023 onwards.

The grounds beneath are shifting. AI LLM workloads started primarily with training, as models are trained, and are increasingly shifting to inference and agentic workloads. Below is how it could look directionally over time.

Splitting Inference into Prefill and Decode.

Inference workloads can be split into prefill and decode.

Prefill (prompt processing) is compute-bound. It processes the entire input prompt in parallel, builds the KV cache for attention, and is dominated by large matrix multiplications.

Decode (token generation) is memory-bound. It generates one output token at a time sequentially and reuses and grows the KV cache on every step autoregressively. It is dominated by memory reads of model weights and KV state. The bottleneck is memory bandwidth.

Each token requires reading the entire model’s weights and the full KV cache from memory, then performing relatively light arithmetic on them. The bottleneck is bandwidth, specifically the latency of getting weights and cache to the compute unit.

The GPU’s FLOPs sit idle waiting for memory. Using a GPU to decode at a batch size of 1 is a Ferrari in a parking lot: expensive silicon and memory doing almost nothing.

Continuous batching can improve throughput by interleaving many independent sequences, but it cannot eliminate the fundamentally low arithmetic intensity of decode, especially for latency-sensitive or single-stream workloads.

Agentic workloads compound this issue further. The industry’s software response is to run both phases on the same chip and optimize for throughput. But the issue remains. One cannot batch your way out of a workload that is inherently sequential. Decode looks like a compute problem but behaves like a memory problem.

AI inference is no longer a single workload that can be served efficiently by a single type of accelerator or memory. AI inference is a dual-stage workload, with very different resource demands for each. The same knife should not be used to cut everything.

The Shortcomings of HBM.

GPUs address this hardware architecture flaw with fast, expensive HBM stacked next to the compute die. Stacking to increase capacity causes thermal, yield, and capacity issues. DRAM chips generate heat, and it is becoming more difficult to remove it effectively.

Each generation of HBM just keeps adding more layers, bandwidth, and pin count. There is a strict JEDEC stack height (currently 775 µm for HBM4). More layers force memory manufacturers to make each DRAM die thinner. Thinner dies are more fragile, warp more easily, and lower manufacturing yield. The industry continues to push the limit higher by relaxing the JEDEC height limit, using thinner dies, hybrid bonding with bump-less direct-to-copper, and better cooling solutions.

There are physical limits to how much thinner DRAM can be shaved and how much higher the shaved layers can be stacked vertically with TSVs (Through-Silicon Vias) and micro-bumps to make HBM.

Yield is also becoming difficult to achieve as layer counts increase. For a given stack yield, total yield decreases as layer count increases.

Capacity-wise, HBM is incredibly inefficient due to HBM’s 3D architecture and larger die size, as it typically consumes 3x more silicon during the manufacturing process as compared to standard DRAM. This is known as the “HBM trade ratio”, and this is expected to rise from 3:1 to 4:1 going into HBM4. Making HBM only pulls capacity out of the DRAM supply chain.

HBM has been scaling slower than compute for several generations now. The memory wall on the hardware side is real. The industry’s response is to keep coming up with new software innovations to incrementally improve, but all it has done is bought time, not escape.

NVIDIA is using HBM to compensate for the flaws of using GPUs for Inference.

Each NVIDIA GPU generation keeps adding more and more HBM memory by increasing gigabits per layer, layers per stack, gigabytes per stack, and HBM stacks. Yet for most of the last decade, compute FLOPs outran bandwidth. Rubin improves the balance by running HBM4 near the top of its range across eight stacks. NVIDIA still built a separate SRAM rack, Groq 3 LPX, to hit low-latency decode targets. HBM was NVIDIA's answer. Rubin shows it was not enough.

NVIDIA GPUs use the most advanced HBMs, and NVIDIA’s share of HBM memory has accelerated through 2025 with the B200 and B300 to ~75% by 4Q25 and should remain strong in 2026.

While more customers are signing 3-5 year long-term agreements (LTAs) for HBM with the three DRAM memory makers (SK Hynix, Samsung, and Micron), no memory maker has publicly disclosed a multi-year HBM LTA with NVIDIA. Because NVIDIA is the largest buyer of HBM, it has the largest bargaining power (i.e., monopsony).

If your biggest customer does not sign an LTA, the argument for LTAs making HBM memory less commoditized should fall flat. Despite LTAs now having prepayments, etc, they remain largely volume-based, with pricing tending to be more floating than fixed, and are signed by many smaller customers with lower bargaining power.

Inference compute remains memory-bound on decode and batch size one. While HBM is a lousy memory, unfortunately, it is the best solution we have right now that can address this structural memory wall problem.

In short, HBM is bit inefficient, power inefficient, and bandwidth inefficient. The memory makers likely know it too and recognize that HBM is not the final answer and will not solve the memory wall problem.

Watch Dr. Hoshik Kim, SVP, SK Hynix, agree with ex-Intel CEO Pat Gelsinger that HBM is a lousy memory and is not the final answer to the memory wall problem.

NVIDIA, being the largest supplier of AI infrastructure, leads the entire stack. It sets the roadmap that memory vendors have to chase. It has a long habit of engineering its way out of its own constraints rather than being disrupted by them.

The memory hierarchy of using more and better HBM to compensate for the GPU’s structural inefficiency in decode is structurally using bad hardware to fix bad software.

HBM itself is a bad memory, but it is just the best solution we got right now. In turn, the memory bottleneck has allowed memory players to price-gorge, profit-maxx, and hit record profitability.

The solution from first principles? Instead of coming up with half-baked software and corresponding hardware solutions. It cannot just be step-wise efficiency gains (e.g., 1-5X better). It has to be significantly transformational (e.g., 10X, 20X, 50X, 100X better) instead, with the rise of new software and hardware architectures.

Disaggregating Inference by Hardware.

The next best solution is to redesign the hardware to better address the inherent software flaws. One way that is increasingly being adopted by the industry is to disaggregate the inference compute workload of prefill, decode, and orchestration/execution.

For hardware, do not choose one chip for everything (i.e., GPUs). Disaggregate and split execution by physics.

While GPUs have been great for training, they are increasingly poorly suited for inference, especially on decode. If inference hardware becomes increasingly disaggregated into prefill and decode and is even less suited for agentic AI, where workloads are dominated by orchestration, GPUs could become less dominant.

Prefill on compute-dense silicon (i.e., NVIDIA and AMD GPUs, custom ASICs). Decode on bandwidth-dense silicon (i.e., Groq LPU, Cerebras WSE, SambaNova RDU, etc). Then orchestrate both from a CPU (i.e., NVIDIA, Intel, AMD, Graviton CPUs) and carry the KV cache on the fabric.

It makes sense to further disaggregate the AI inference hardware stack. Numerous launches to disaggregate prefill and decode have been announced over the last few months by the majors, including NVIDIA, AWS, Intel, AMD, with Groq, Cerebras, and SambaNova for decode-specialized chips.

NVIDIA ran the inference disaggregation experiment on both legs, and only one worked. In September 2025, it announced Rubin CPX, a prefill chip carrying GDDR7 DRAM instead of HBM, on the logic that compute-bound work does not need expensive bandwidth. Six months later, CPX was absent from the GTC 2026 roadmap, with NVIDIA’s Ian Buck reported as saying the concept moves to Feynman, and the redesign putting HBM back in.

The decode leg went the other way. NVIDIA’s Groq 3 LPX shipped as a separate rack of SRAM chips beside Vera Rubin. Cheap memory for prefill was tried and shelved. SRAM for decode was tried and shipped. NVIDIA keeps attention on the GPU and sends only the feed-forward work to the LPUs. Only the decode weights move to SRAM. Prefill and the KV cache stay on HBM.

If this growing hardware disaggregation takes flight, we could have a structural reduction in HBM memory demand. As AI storage evolves, it could further broaden into different storage hierarchies optimized for each workload and across different chips.

There exist many types of memory because of the speed/capacity/cost trilemma in memory. In short, fast memory is small and expensive, while cheap memory is slow and large.

The physical structure of memory determines this trade-off. Semiconductor design works around this physical limitation by stacking different types of memory in a hierarchy. Faster, smaller memory sits closer to the processor, while slower, larger memory sits further away.

Memory can also be thought of in another spectrum: short-term versus long-term memory, best illustrated in the memory hierarchy pyramid below.

The lower it is, the more like long-term memory it is. NAND memory can hold a lot of data (i.e., remembers), but is slower to retrieve and is cheaper. The higher it is, like SRAM and HBM, the more it is like short-term memory (i.e., forgets). It holds less data, is faster, but more expensive.

Concluding Thoughts.

As inference compute disaggregates, memory demand broadens beyond HBM. Weight traffic in decode moves to SRAM. Prefill stays on HBM. So does the KV cache, and it grows with context. HBM intensity per token falls. Absolute HBM demand likely keeps rising for years, just more slowly than before.

Not all thoughts need HBM.

The deeper problem remains upstream. Attention scales quadratically, and nobody has fixed it. Everything downstream is compensation. More HBM, more FLOPs, more racks, more energy, more capital. We need a fundamentally different software architecture first. Without it, we keep buying expensive hardware to paper over a flaw in the software.

This will take time. New hardware needs an ecosystem, and ecosystems hold until they give. But the direction is set. The memory makers are earning record margins solving a problem the industry has already started redesigning around. Cycles end when the thing being paid for stops being the only option.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

3 Aug 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look for in companies, where we find them, and when we invest. Available via Amazon: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

Scarcity versus Abundance.

The concept of scarcity versus abundance, and, more recently, constraints versus freedom, has increasingly occupied my mind over the last few years.

Vitaly Katsenelson first introduced to me the concept of the value of scarcity and the pitfalls of abundance in 2023 in Omaha, which he subsequently discussed here.

There has to be a beautiful balance of scarcity and abundance. Make something abundant, and if everyone can have it, eventually, no one wants it. Abundance can rapidly devalue things we enjoy. With too much of something, your incremental satisfaction rapidly declines and can even become negative.

Conversely, controlled scarcity, whether through supply or price, can make things desirable. More often than not, it makes us want what others have. Luxury clearly excels at this, think Hermès in handbags, Patek Philippe in watches, and Ferrari in sports cars.

Constraints versus Freedom.

David Epstein, in his latest book “Inside the Box: How Constraints Make Us Better”, synthesized the concept of constraints versus freedom, and specifically makes the case on how constraints make us better. I thought the concept of constraints offered a deeper insight into scarcity, and I wanted to expand on this further.

Desiring complete freedom.

Below is one of my favorite quotes from the financial writer, Morgan Housel:

“The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’ People want to become wealthier to make them happier. Happiness is a complicated subject because everyone’s different. But if there’s a common denominator in happiness—a universal fuel of joy—it’s that people want to control their lives. The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.”

- Morgan Housel - “The Psychology of Money” (2020)

I would add “how you want, and where you want” to that as well. A revised version of having “complete freedom” would probably look something like this:

“The highest form of wealth is the ability to do what you want, when you want, with who you want, how you want, and where you want.”

- Eugene Ng

When I decided to quit my job just over two years ago to start Vision Capital Fund to do my dream work for the rest of my life, I had this life goal in mind. I no longer had to trade my time for money by doing work I did not love (but was good at). I wanted to live my Ikigai (生き甲斐) for the rest of my life till I die.

Suddenly, my entire calendar cleared up. I could be as busy as I want if I said yes to everything and wanted to do it all. Conversely, I could be as free as I want if I said no to everything and did nothing. I remembered being asked by the MITIMCo team back in 2024, “What would your day be like when you are doing this full-time?” That single question had been constantly on my mind in this new lifelong marathon.

What I valued most was the freedom, not determined by working hours or the need to work on other people’s agendas and goals. The freedom was implicit, no longer explicit. Intrinsic goals internally drove it. I could work as hard as I want when and how I want. I could binge-read a book in 1-2 days, write articles in hours, or sprint for an intense 1-2 weeks to write an investment memo.

But I soon realized that copious amounts of freedom can be extremely dangerous if one is not highly disciplined. Before you know it, time passes rapidly. After all, who you are is how you spend your time. What you do, you eventually become. This brings me to the idea of forced constraints.

Avoid having total freedom without constraints.

David Epstein, in his latest book “Inside the Box: How Constraints Make Us Better” (which I highly recommend), frames with excellent examples (General Magic vs. Pixar, Virginia Woolf, Isabel Allende, etc) the idea that forced constraints (of being inside the box), rather than no constraints (being unboxed), can create powerful breakthroughs.

The story of General Magic (1990-2004) raising so much capital so quickly to create “heaven for engineering” resulted in too much creative freedom for its engineers. Innovation and inventions came fast and furious, and they were custom-building almost everything.

Overflowing with resources and talent, and with few helpful constraints, General Magic grew rapidly without clear boundaries, not having a clear idea of what they were building, who they were building for, how much it was going to cost, or when it was going to ship.

Eventually, General Magic, like most startups, died of indigestion, rather than starvation (David Packard). A world without any limits will likely not last in the end.

Do something, not everything. Do not try to be everything to everyone and eventually become nothing to no one. A jack of all trades is a master of none.

Have some constraints.

No constraints and too much freedom bloats. Extreme constraints and little freedom suffocate. Have some constraints. There has to be a sweet spot in the need for constraints. And if there are insufficient constraints, design helpful ones.

Why the need to have constraints? Engineers often operate best under (some) constraints, and when forced to innovate, can produce creative workarounds. Total freedom is the enemy of creativity, and constraints are its companion.

Constraints can unleash, rather than stifle, potential; they can be tools for creativity, collaboration, and contentment, whether they are purposeful, self-imposed, or simply inevitable or inherent.

Find your sweet spot of the right amount of constraints.

Types of constraints. What presses you versus what you press?

Before choosing the right mix of constraints, understand the kind of constraints you are dealing with. The left column holds the given constraints. The right holds the chosen ones. The list runs from where a constraint comes from, what it is made of, how firm it is, whether you can see it, and whether it is acting now, to what it finally does to you. Go down the list and the constraint turns from something that happens to you into something you work.

Framework of the Types of Constraints.

Natural constraints are given. Self-imposed constraints are chosen.

Physical constraints are real. Mental constraints are imagined.

Resource constraints stretch. Temporal constraints bind.

Hard constraints hold. Soft constraints bend.

Known constraints guide. Unknown constraints ambush.

Binding constraints bite. Slack constraints wait.

Limiting constraints subtract. Enabling constraints multiply.

Source. Where it comes from. Natural constraints are given. Self-imposed constraints are chosen. Accept the given. Author the chosen. Most people rage at the first and neglect the second.

Substance. What is it made of. Physical constraints are real. Mental constraints are imagined. The real walls you plan around. The imagined ones are painted. Test each before you treat it as solid.

Supply. Resource constraints stretch. Temporal constraints bind. Money can be grown, raised, and traded. Time cannot. Spend the renewable to protect the fixed.

Rigidity. How firm it is. Hard constraints hold. Soft constraints bend. Break a hard one, and you break yourself. Defer to a soft one too long, and you stall. Know what you face before you push.

Visibility. Whether you can see it. Known constraints guide. Unknown constraints ambush. Plan around the ones you see. Hold a buffer for the ones you cannot. Every blowup is an unknown that was binding all along.

Force. Whether it is acting now. Binding constraints bite. Slack constraints wait.
At any moment, only one limit truly binds. Find the one that bites. Fix that, and the rest stops mattering.

Effect. What it does to you. Limiting constraints subtract. Enabling constraints multiply. The same fence can cage or focus. A sonnet has fourteen lines, and that is why it sings. The art is turning the limit into the form.

Mix of constraints. What works best?

The first dimension to expand further is that the optimal mix of constraints should vary across people (different personalities), the type of work (repetitive vs. creative/strategic), and businesses (startups vs. mature, and industry verticals). This optimal mix should also evolve dynamically over time. There is no one-size-fits-all. The mix has to be matched to the case.

People differ in personality and traits, shaped by genetics, environment, and experience. A Type A, driven and competitive individual, performs best with more pressure and can take a heavier load before output suffers. A Type B, calmer and more patient individual, peaks at a lower level, where the same pressure that sharpens a Type A would instead wear them down. Neither type is better. Each simply has its own optimal level. Past it, anyone's work degrades, whatever the task. The best managers read this in each person and set the level of constraint that brings out their best.

The type of work, too, affects the right mix of constraints. Execution-focused work, which rewards focus, repetition, and efficiency, needs more constraints. Sales is the clear case. Strip out the targets, the metrics, the incentives, and most salespeople drift. On the other hand, thinking-focused work, which rewards strategy and creativity, needs fewer, but not none. Give a writer no deadline, no word limit, and no topic, and the work loops and rambles and never ships. The skill is matching the number of constraints to the nature of the work.

The right constraints also differ across businesses at different life stages and across different industry verticals. Startups are typically heavy on given constraints and light on chosen ones. Resources and time bite hard, and the process is thin by design, because speed and learning matter more than control. Mature companies are the reverse, lighter on given constraints, heavier on chosen ones. Resources abound, and capital and headcount are no longer the binding limit. They have to add more chosen constraints, such as process, controls, structure, and standards. Not because they love bureaucracy, but because at scale, customers expect the same consistent product every time, and without structure, the company cannot deliver it. It is not just about the mix of constraints, but also the kind and source. Startups are bound by what is given. They should resist adding too much of what is chosen. Mature firms are freed from what was given. They survive by adding what is chosen.

The optimal constraint mix also differs across industry verticals. The more a mistake costs and the less reversible it is, the more chosen constraints the business demands. Where errors kill or cannot be undone, the number of chosen constraints should run higher. Examples would be aviation, surgery, banking, and drug manufacturing. Chosen constraints like checklists, audits, regulations, and redundancy are what keep the business alive and licensed. Where errors are cheap and reversible, chosen constraints should run lower. Think design, software, advertising, research, and the arts. Experiment, iterate, fail fast. Too many constraints will ultimately kill the work the business is paid to produce.

The mix shifts across four levels, each weaker than the one beneath it. Industry sets the floor. Stage tilts it. The work and the person fine-tune from there. Read it top down to see where you sit. Build it bottom up to set your mix. Then keep tuning, because the ground keeps moving.

Parallels of constraints to business, investing, and life.

The framework of intentionally having constraints is not abstract to me. It is how I run Vision Capital Fund and my day-to-day. Too many constraints suffocate. None at all bloat. Somewhere between sits the sweet spot. And at almost every fork I have chosen constraints over freedom, on purpose.

Start with capital. I could go out and raise aggressively. Instead, I cap the fund’s growth. Size is the enemy of returns, so I would rather grow slower and stronger than faster and weaker, and I would rather hold the line than chase every dollar offered. I want sticky, long-duration capital, not flighty money that flees at the first drawdown, because the wrong investor is a constraint I cannot control and the right one is an additional freedom we have. I lean on external capital alongside my own, not because I lack conviction, but because the outside money I have promised to steward forces a discipline that my own money alone would not. And I want more inflows when the market falls, less when it prints new highs, because capital that shows up in the panic is worth more than capital that chases the euphoria.

Then the universe of stocks. I could own anything. I choose to own a select few. The fund lives in a narrow band, quality compounders that are growing, dominant, and durable, and the narrowness is the point. Durable secular growth over hypergrowth that cannot last. The top dogs riding a real tailwind over whatever has momentum this year. A handful of names held for years over hundreds of names traded for months. My constraint is my edge. By refusing most of the market, I am forced to know the little I own better than the people selling it to me.

Then temperament, which is where most returns are won or lost. The market hands you unlimited freedom to act, and acting is usually the mistake. So I constrain myself. Patience over greed, and over the fear of missing out, which is greed wearing a disguise. I would rather limit the downside and compound value conservatively than chase the highest possible upside. I have made peace with price swings rather than trying to manage them, because price volatility is the toll the patient pay and the panic tax the impatient give away.

Then accountability, the constraints I build because no boss imposes them on me now. Freedom from a manager is freedom to drift, so I manufacture deadlines. One memo and one article a month. The memo capped at three pages, because the page limit is what forces the thinking to clarify. A monthly update to investors and a letter each quarter. Earnings tracked every quarter for what I own and what I watch, reading every single word of the conference call transcripts. None of this is required of me. That is exactly why I require it of myself. I write to investors with honesty and plainness, because the promise to explain myself in public is the cheapest discipline I know and the hardest to fake.

And then the day itself, where all of it finally rests. The grand argument about scarcity and freedom comes down, in the end, to the body and the hours. These are the constraints I hold myself to. Sleep enough. Eat well. Move every day. Read, think, reflect, and write daily, because who you are is how you spend your time, and what you do, you slowly become. The fund is just this lifelong practice, scaled up. Find the few things worth doing. Fence out the rest. Then keep showing up inside the fence.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

24 Jun 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

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Most of the best leaders tend to be missionaries, not mercenaries, because the critical distinction separating the best is less about what they do than about what they believe in and how they behave. John Doerr, a venture capitalist at Kleiner Perkins, first introduced this concept back in 2000.

“Don’t start a company unless it’s an obsession and something you love. If you have an exit strategy, it’s not an obsession.” - Mark Cuban.

What are the differences between Missionaries and Mercenaries?

Missionaries are genuinely passionate and strategic. They are all about the big idea and long-term partnerships that land. They understand that innovation is a long-term endeavor, a marathon, not a sprint. They are evangelists, obsessively committed to the mission and practicing delayed gratification. They are playing an infinite game, but with the urgency of someone who knows time is not on their side. Missionaries have a lust for making meaning and money. They started for a cause larger than themselves, one worth dedicating a life to. They obsess about customers, fret over values statements, exude an attitude of contribution, are meritocratic, and welcome good ideas wherever they originate. Missionaries are focused on contribution and aspire to success and significance. Missionaries are mentors and coaches of teams. Teams of missionaries are engaged and motivated, with a deep understanding of the business context and have tangible empathy for the customer.

Mercenaries, on the other hand, are driven by paranoia and are opportunistic. They are all about the pitch and the deal, and are eager to sprint for short-term payoffs. They are playing a finite game. They tend to flip for early payouts, exit and move on, and are serial founders, which makes them less committed. They move fast, but only because they are looking for the exit. Mercenaries have a lust for making money only. They started to make money, and the moment a better deal appears, they are gone. Mercenaries obsess over competition, fret over financial statements, display an attitude of entitlement, and revel in the aristocracy of founders. Mercenaries are the bosses of wolf packs, focused on entitlement and striving solely for success. Teams of mercenaries feel no real sense of empowerment or accountability, no passion for solving the problem, and have little real connection with the actual users and customers.

The table below captures the differences at a glance.

Final words.

Which are you? A missionary or a mercenary? Which is the one that you prefer to work with you, work for you, or run a business or a startup that you own?

We tend to prefer leaders and work with missionaries, and generally find mercenaries less compelling. We want to invest in entrepreneurs and leaders who have the desire to change the world and the patience to see their ideas through. They have this infectious, tenacious grit, perseverance, and determination to stick it out, combined with resourcefulness and the ability to evolve and improve continuously.

We, too, after all, are missionaries investing in businesses led and run by missionaries.

References.

https://hbr.org/2016/04/what-separates-high-impact-entrepreneurs-from-those-who-dont-make-a-big-difference

https://25iq.com/2016/11/05/a-half-dozen-reasons-why-venture-capitalists-prefer-missionaries-to-mercenaries/

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

11 Apr 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

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The average investor made money. The average investor also does not exist. There is no average investor. There is only you, your portfolio, your decisions, and your one path through time. Finance forgot that. Ergodicity remembers it.

I came across ergodicity through the work of Ole Peters, Nassim Taleb’s writing, and Luca Dellanna’s book. The more I studied it, the more I realized it had profound implications for how we invest, manage risk, and think about survival and compounding over time. This article is my attempt to bring that idea to life.

Questions on Ergodicity that we seek to address:

What is Ergodicity? Why is Ergodicity relevant?

What is the Ensemble Average, and how does it differ from the Time Average?

Examples of Ergodicity or Non-Ergodicity in real life?

Is Investing Ergodic or non-Ergodic?

What are the implications of Ergodicity for Investors?

Act I: The Diagnosis (most systems are non-ergodic, and finance pretends otherwise)

A system is ergodic if the average outcome over many people (ensemble average) equals the average outcome of a single person over time (time average). When those two diverge, the system is non-ergodic, because you are not the group.

Imagine 100 people each play Russian Roulette once. One bullet, six chambers in a pistol, spin the chamber, and fire the pistol. Survivors get a huge prize. The group average survival rate looks seemingly acceptable (83% = 1 - 1/6). That is the ensemble average. The expected value is 0.833 (5/6 x 1 + 1/6 x 0). A classical economist would say, positive expected value, rational to play. If the prize is $1 mil, $10 mil, or $100 mil, does the size of the prize matter? Would you still play such a game?

Now, imagine that one person can only play 100 rounds of Russian Roulette sequentially. They are dead with near certainty (~99.999999%). While in round 1, the probability of death is 16.7% (i.e., 1/6), which rapidly increases as more rounds are played. Probabilities grow rapidly to 60%, 84%, 97%, 99% after 5, 10, 20, 30 rounds, respectively. This is the time average.

It’s the same game, but over time results in a completely different outcome. What good is the prize if you are not alive to collect it?

History of Ergodicity.

Let’s go back. The word ergodicity comes from the Greek words “ergon” (work) and “odos” (path). Literally: the path of work.

Ergodicity was born in physics, specifically in statistical mechanics.

Ludwig Boltzmann (1870s) introduced the “ergodicity hypothesis” while trying to explain the behaviour of gas molecules.

His problem was how to predict the behaviour of trillions of gas molecules? His solution was to assume that averaging over all molecules at a given moment was equivalent to following a single molecule over time.

Henri Poincaré and mathematicians (early 1900s) began formalizing and questioning Boltzmann’s hypothesis. George Birkhoff and John von Neumann (1931) both independently proved the first rigorous ergodic theorems, giving ergodicity a firm mathematical foundation.

Ole Peters (2009 onwards) argues that economics has been applying ergodic assumptions to fundamentally non-ergodic systems.

Economic theory, at its core, focuses on utility maximisation subject to a budget constraint, without considering the possibility of total ruin over time.

Ergodicity economics postulates that individual agents should maximise the time-average growth rate of wealth rather than the expected value of wealth or the utility of wealth.

Here is the problem. Let’s return to our game of Russian Roulette. Expected value (i.e., 0.83 = 5/6 1 + 1/6 * 0) treats death as just another weighted outcome in the average. It simply assigns a number (i.e., 0) to an irreversible, permanent, non-repeatable event when a bullet is finally fired, and folds this into a calculation as if it were recoverable.

Death is not a bad outcome that you can average away. It is a game-over. It permanently removes you from all future rounds. This is exactly the ergodicity problem. Most human systems and finance assume ergodicity, that ensemble and time averages are the same, when they are not. This is what most of finance does with risk.

Finance typically assumes smooth compounding over time, but in practice, the sequence of returns matters because volatility tends to cluster. Do not trust advice about a non-ergodic system that assumes ergodicity.

Act II: Survival First (remove the left tails before anything else)

You need to survive the short run to enjoy the long run. There are decades when nothing happens and weeks when decades happen. It is not about being ergodic during decades in which nothing happens, but if it is ergodic in the weeks in which decades happen.

When you consider an investment or a decision in life, don’t just consider the average, but also the distribution of outcomes over time. Treating non-ergodic processes as if they were ergodic poses a risk of eventual ruin.

Always think about the different paths of parallel universes through time.

Maximize growth that first conserves survival. Game-overs cause non-ergodicity. Do not maximise growth over survival. When permanent game-overs are possible, don’t rely on averages. Focus on not being wiped out permanently first.

Avoid a total loss and irreversibility at all costs. Never allow a single negative event to maximise short-term returns, rendering long-term maximisation irrelevant. If you are going to play a game where, after many rounds, you are almost certainly going to be dead. Avoid playing all games that are not repeatable at infinity.

Eliminate all unlimited downside (of permanent irreversible loss) to as much as you possibly can. You don’t want to lose it all. If there is any chance of blowing up, you will eventually.

The sweet spot: remove the left tails, so you can enjoy the right tails. Seek asymmetry by limiting your downside and increasing your upside significantly.

Survival beats performance. Performance is always subordinate to survival. The longer the time horizon, the more true this becomes. To be among the best over time, you need to keep playing the game, rather than being kicked out.

Focus on being antifragile, not fragile. To determine whether something is fragile or antifragile, expose it to volatility and see how it responds. Fragile things are harmed by volatility, and antifragile things benefit from volatility. Fragility is non-ergodic. Antifragility is ergodic. Fragility has limited upside and unlimited downside. Antifragility has a limited downside and unlimited upside.

In investing, we choose to avoid unlimited downside. margin/leverage, selling options, short-selling, extreme concentration (<5-10 stocks), and duration mismatch (short-term capital chasing long-term returns). It is not about getting rich fast and then getting wiped out, but about growing and staying rich for a long time.

We avoid margin/leverage at all costs. Brokers can offer up to 100x leverage, but never take it. A 1% move against you could wipe you out. A Monte Carlo simulation of 20 sequential scenarios with 20X leverage, using 8% p.a. returns and 18% annualized volatility, shows that ~90-100% of the time, one will eventually be permanently wiped out (with a cumulative loss of -5%).

Selling options is simply not what we do. The selling of calls or puts results in unlimited downside (see payoff diagrams below).

It is not about getting the small premiums when markets are doing well. When markets inevitably fall, the huge losses are significantly larger than all the small gains one received previously. This reminds me of when I tend to see more “option investing course” ads on YouTube and Facebook when markets are doing well. And then, when markets crash, most of these participants get wiped out, and when markets recover, a brand-new set of foolish participants come along again for the ride.

The presence of irreversibility doesn’t imply that you should not take any risk. Recognise and acknowledge non-ergodicity, take and size risks appropriately, so that being wrong never wipes you out permanently.

Act III: Let the Right Tails Run (once you survive, compound aggressively)

Focus on long-only stock investing, finding durable compounders that can keep growing and reinvest for a long time. The average daily return of investing in the stock market is slightly above zero, and slightly better than the odds of a coin toss (i.e., 52% ensemble average), but the time average of holding stocks over decades would be much higher historically at 88-100% probability (time average) of making money.

Have a process to increase your likelihood of picking winners and avoiding losers. Like in venture capital, power laws also exist in public stock markets. Bessembinder’s 2020 study found that ~1% of ~63,000 companies over 1990-2020 globally accounted for ~90% of total net returns. The majority of stocks (>55%) lost money. Individual stocks are deeply non-ergodic. The winners matter. Find them early, hold them for a long time, and if you get a few right, they will become a large allocation of your holdings and account for the majority of returns, offsetting most of the losses combined. Adopt a barbell approach. Allow for greater risk in smaller positions with greater upside. That said, once the winners become overly large, then consider trimming them to a position that you will be comfortable with.

Diversification as a process, concentration as an outcome. Individual stocks are deeply non-ergodic. Companies can go to zero permanently. One bad bet, held in concentration without process, can end the game. Sufficient diversification at the portfolio level reduces non-ergodicity. It shrinks the left tail. It makes permanent ruin less likely. While the sequence of returns never fully disappears, the longer you hold a diversified portfolio and let your winners run, the higher the probability that positive returns converge towards certainty (100%).

Don’t agree with redistribution, particularly for investing. Trimming your winners to feed your losers is incorrect, as it assumes the same likelihood of returns. Winners tend to keep winning, and losers tend to keep losing. Persistence tends to be more likely at both the right tails (winners) and left tails (losers). As long as the risk is overly significant, one should first let your winners run high, second, don’t trim them, and third, add to them.

Don’t aim to be the best in any given year. Aim to be among the best you can be. To be number one, you need to have great skill and great luck. Aim to be amongst the best over time, where the contribution from skill will increasingly outweigh the contribution from luck. Being the best involves having the most skill and the most luck. Unfortunately, luck is largely outside our control. In the short term, the fewer the flips, the more likely it is to differ from its expected value (i.e., luck). Over the long term, the more flips, the more likely the average of the observed results will converge closer to the expected value (i.e., skill).

Seek out skin in the game, as it reduces moral hazard and sources of irreversibility. Be wary of advice from people and envying people without skin in the game. Skin in the game forces people to live with the time average rather than hide behind the ensemble average.

Thinking in Parallel Universes

Always apply the mental framework of thinking in parallel universes across time, not to single paths at a single moment.

Yet if time is stretched to infinity, everything becomes non-ergodic, which is not very helpful. Focus on a realistic, long enough time frame that matters to you.

Most people make decisions as they live in one universe. One path, one outcome, one bet. That’s not how reality works. Every decision you make today spawns a forest of possible futures branching outward simultaneously into the future. Ask not “will this work?” but rather ask if “across all the universes where I make this bet, what could happen?”

The Three Principles of Parallel Universe Thinking:

1. Judge decisions, never outcomes. A bad outcome from a good decision is just an unlucky universe. Do not let one universe rewrite your entire framework.

2. Survive the bad universes first. You cannot win the good ones if a single bad universe destroys you entirely. Ruin is the only outcome that matters because it ends your journey across all remaining universes permanently.

3. The best bets look wrong in most universes. Genius is seeing the universe others cannot yet imagine and holding to that conviction long enough to live inside it.

The ordinary investor fears the universe they are in. The extraordinary investor is already positioned for the one that has not arrived yet.

Think in forests, not trees. Think in universes, not paths. That is where the edge lives.

References:

Book: Ergodicity by Luca Dellanna

YouTube: Ergodicity and investing by Luca Dellanna

Article: A Big Little Idea Called Ergodicity by Taylor Pearson

Book: Antifragile: Things that Gain from Disorder by Nassim Nicholas Taleb

Previous Articles

Why Investing is like being Long Optionality?

Investing: Is it skill or luck?

My 12 Biggest Key Investing Takeaways from “Antifragile” by Nassim Taleb

The Winners You Missed Cost More Than the Losers You Picked.

The Convexity of Stock Investing.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

11 Mar 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

SaaS software stocks have declined significantly since Oct 2025 amid broader concerns that software is in decline, disrupted, displaced, and replaced by AI. Companies will use AI to redesign and unbundle their workflows over time, and the markets are effectively pricing in a software apocalypse.

The selloff has been almost indiscriminate, and the market is overly pessimistic.

As expected, faster-growing companies tend to exhibit greater price volatility. This is because most of the present value lies in the future. Any change in future expectations by Mr. Market can lead to significant fluctuations between ecstasy and agony. In this case, a substantial downward revision of future expectations has led to a significant drawdown in stock prices.

Let us return to first-principles thinking. The internet significantly reduced the marginal costs of distribution. AI is considerably reducing the marginal costs of creation. For most of software history, code execution was scarce. Code development was slow, costly, and constrained by the use of expensive human code developers. AI is accelerating code production, making it cheaper and enabling a much larger volume. While software costs are inching down, they are not collapsing overnight (yet).

When the cost of writing and maintaining code drops, companies start evaluating whether specific internal workflows, edge cases, or domain-specific processes that were previously too expensive or fragile can be automated. Software is not a technology barrier, it is a business knowledge barrier.

Software is a digital tool. It does not make sense to keep reinventing tools (e.g., a calculator or a hammer). If there are new tasks that have not yet been automated and can now be automated with software, now is the best time. Software is a TAM accelerator, and companies can create new and more products in shorter time frames.

The future appears to be agentic, with agents constituting the new digital workforce for humans, working for us and with other agents on exploratory, low-value, and repetitive tasks, thereby allowing us to focus on higher-value creative and strategic tasks.

The fact that everyone has a pen or a keyboard does not mean that we will have a rush of great writers, authors, or coders. The best work will still be done by the select minority, not the vast majority. Writing code is easy. Shipping a basic V1 is just 1% of the work. 99% of building enterprise software is about writing code that actually works and keeps working, maintaining it, iterating on it, securing it, and scaling it, and that is where the real difficulties lie. Vibe coding might be incredible for prototypes, internal tools, and new products, but it is not replacing a proven tool.

It is the same with AI. It does not mean that, if one can code faster with AI assistants, one can write great code or develop a great product. It still requires deep understanding, intent, judgment, and taste. And that’s where the bottleneck lies. Try getting a first-year coder to “vibe-code” and build a massive CRM database, and you will soon realise that it is not as easy. Automation scales whatever structure already exists. Agents tend to work best when intent is explicit and stable, and struggle when it is implicit and judgment-intensive.

SaaS is heterogeneous, not homogeneous. One cannot simply be lazy and lump everything into a single category of thought. The idea that enterprises will dump all software to “vibe-code” their own software with AI agents is wildly optimistic. Larger, more complex SaaS platforms with substantial codebases, deep workflows, extensive API connectors/regulatory licenses, strong network effects, and extensive hardware infrastructure are likely to be more insulated.

Deterministic systems where precision is critical, non-negotiable, requiring it to be 100% all the time, are more likely to be more insulated, as “close enough” is simply unacceptable. Probabilistic systems, conversely, tend to tolerate some errors and accept good-enough performance, and are primarily focused on pattern recognition, content generation, basic automation, and simple decision-making. If an LLM can replicate your probabilistic product with 90% of the quality at 10% of the cost, you are likely not to have a sound business model any longer. Even having a great UI or UX won’t save you.

High-value, mission-critical, must-have software is likely to be more insulated than low-value, non-mission-critical, good-to-have software. Functions such as cybersecurity, payments, and infrastructure are likely to remain robust. Because when these go down, the business stops. Customers should continue to be willing to pay premium prices for quality and peace of mind, remain highly sticky, and rarely switch because the cost of failure is too high. They tend to have high gross retention (customers don’t leave), high net retention (customers spend more over time), and are willing to pay more as their business grows.

The problem of software sprawl continues. Enterprises are increasingly using too many SaaS applications. While they made sense when purchased individually, they have since created increasing chaos, fragmented data, security gaps, and ballooning costs. Companies are increasingly moving away from single “best of breed” to “best of suite” consolidators that offer a broad, growing product portfolio, and these should continue to outperform single legacy solutions.

Outcome/usage/value-based pricing will increasingly dominate seat-based pricing business models. Seat-based pricing assumes that value scales with headcount, revenue, and seats. But AI breaks this assumption completely. Employees using AI tools and agents are significantly more productive and can do more work, so companies no longer need as many seats as before. In addition, SaaS companies that continue to raise prices without delivering additional customer value will begin to struggle as customers consider switching or even attempting to replicate the service themselves.

Smaller startups and SMBs with low legacy data gravity, integration web, and switching costs are more likely to be early adopters than large enterprises when experimenting with building rather than buying. Larger enterprise customers seek greater insulation, preferring to buy over build, as they cannot risk failure and often require primary and backup providers. They would like strong, established, and proven vendors to handle these functions, allowing them to focus on their core business of producing products and services for sale.

Horizontal SaaS consolidators are safer than vertical SaaS specialists. Most AI builders are now focused on developing vertical AI products rather than horizontal AI products and platforms, and this trend has accelerated in recent quarters. It is far easier to go for the lower-hanging fruit in more niche, custom, specialized vertical SaaS with less competition than to go up against the top dogs in horizontal SaaS.

Many vertical-market software (VMS) companies, especially PE-backed ones or those acquired by serial acquirers, are optimized for extraction rather than innovation. Structurally low reinvestment rates are a feature, not a bug. Their playbook flywheel is simple: acquire VMS, reduce R&D, raise prices, harvest cash flows, and acquire more. Rinse and repeat until they grow large enough that acquisitions become more difficult and costly, and valuation multiples compress. VMS customers often stay because switching is painful, not because the product is great (old and legacy).

Disruption by AI should vary across industry verticals in vertical SaaS, depending on the complexity of regulatory knowledge, industry workflows, and compliance requirements. The domain expertise moat could begin to erode, as these AI builders can engage industry domain experts to develop a good-enough product that delivers 80-90% of the value at 10-20% of the cost. For many of these smaller companies, that might just be enough.

Dynamic over static. SaaS companies that continuously seek to improve their products/services and add more over time, and that embrace AI wholeheartedly and use it to enhance their offerings, are likely to be more resilient than those that are slower or more reluctant to do so.

Longer over shorter. SaaS companies with longer multi-year contracts, rather than shorter monthly/annual contracts, would have higher switching costs, greater visibility, and higher customer retention, allowing them to be more strategic about their product innovation cycles.

The market sees a software apocalypse. We see software Darwinism. The fittest will survive, consolidate, and thrive. SaaS is heterogeneous, not homogeneous.

Overall, most, if not all, of the SaaS companies we own exhibit the preferred traits we highlighted. The selloff could well persist, but we think the market is overreacting. We recently added to several of our existing positions during this selloff, which we believe was oversold. We would be happy to deploy any additional capital we receive into what we consider long-term, attractive opportunities.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

05 Feb 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

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The Asymmetry of Stock Investing.

We first wrote about the asymmetry of stock investing, where it is like being long optionality, like long a call option. Asymmetry is the holy grail in finance. The initial return profile of buying a stock is symmetrical. If a stock goes up 25%, you make 25%, and vice versa, if a stock goes down 25%, you lose 25%.

Yet over the long term, it is certainly not symmetrical. The risk-reward asymmetry becomes compelling. When buying a stock, the downside is capped at 100%, but the upside is theoretically unlimited, with potential returns of 10x, 20x, or 50x. Each long stock position functions like a long call option, and a portfolio of stocks effectively resembles a giant long call option payoff.

Asymmetry is the holy grail in investing, where over a long time, in heads, you don’t lose a lot, and in tails, you win increasingly more.

Convexity versus Concavity.

I recently came across this quote by Gautam Baid, and I thought the opposites were wonderfully juxtaposed.

“Compounding is convex on the upside and concave on the downside. It means that compounding increases at an increasing rate on the upside and decreases at a decreasing rate on the downside. Positive asymmetry.⁠⁠”

- Gautam Baid on The Talking Billions / Excess Returns Podcast (9 Jan 2026)

But after careful thinking, I realised the first sentence was incorrect and contradictory. Compounding is not convex to the upside and concave to the downside, but is actually convex on both the upside and the downside.

Let me explain further. Let’s start with two basic concepts: convexity vs. concavity.

On the upside, convexity curves upwards where gains increase at an increasing rate, and concavity curves downwards where gains increase at a decreasing rate.

On the downside, convex losses decrease at a decreasing rate, and concave losses decrease at an increasing rate.

Convexity has positive asymmetry: limited downside and unlimited upside, which is highly desired. Conversely, concavity has negative asymmetry, unlimited downside, and limited upside, which is not desired. We always prefer to play and structure our games to be as positively asymmetric over time, and eliminate unlimited downside.

Convexity is like a snowball rolling downhill. It starts small. But as it rolls, it picks up more snow. The bigger it gets, the more snow it picks up with each roll. Growth builds on growth.

Concavity is like inflating a balloon. The first few breaths make a big difference. But the fuller it gets, the harder you have to blow for the balloon to expand. Eventually, you’re red in the face, and it barely budges.

Why is there Convexity in Long-Term Stock Investing?

Let’s start with $100 equally invested in Stock A and B. The price of Stock A keeps rising 25% every year, and Stock B keeps declining 25% every year.

In the first year, the value of Stock A rises 25% to $125, and Stock B declines 25% to $75. The portfolio value remains unchanged at $200 with 0% returns (not good).

At the end of year 5, Stock A rose ~3X to $305, and Stock B has declined by 76% to $24. The portfolio value is $329, with a cumulative return of 64% and an annualised return of 10.5% p.a. (good).

At the end of year 10, Stock A rose ~9.3X to $931, and Stock B has declined 94% to $6. The portfolio value is $937, with a cumulative return of 368% and an annualised return of 16.7% p.a. (strong).

At the end of year 20, Stock A is an 86-bagger to $8,674, and Stock B has declined 99.7% to $0.30. The portfolio value is $8,674, with a cumulative return of 4237% and an annualised return of 20.7% p.a. (very strong).

Lessons for Buy-and-Hold Long-Term Investing?

While we acknowledge that the assumptions are highly simplistic: (1) a constant 50% batting average, (2) an equal-weighted two-stock portfolio, and (3) both stocks rising and declining at the same rate, the following lessons are instructive.

1 | Winners increasingly matter, losers increasingly don’t. If you have a winner, a little is all you need, and even if you do have a loser, it doesn’t matter. Asymmetry does not exist in discrete time periods, but shows up over time.

2 | Compounding starts slow but accelerates over time. Returns take time to show up, only if the winners are held. Being able to hold on to winners and not trim them allows one to keep growing cumulative returns exponentially and annualised returns towards steady-state rates of 20%-22%+ p.a. after 10-20 years.

3 | Winners become increasingly significant as you hit it out of the park, as portfolio concentration grows over time. The gains from the multibagger winners will keep growing, increasingly offsetting the losers’ combined losses many times over. The losers don’t matter, the winners do.

4 | Sufficient diversification is necessary to allow for this to be achieved, not being overly concentrated (<10 stocks) or being overly diversified (>100 stocks). If one is overly concentrated, and if a winner becomes overly large or runs into single-position limits, one eventually has to trim the winner. Constantly trimming your flowers, not allowing your winners to run, and watering your weeds are among the worst things one can do. Sufficient diversification by owning more stocks allows one to have a better risk appetite and more patience to hold on to winners, especially when they experience inevitable large price declines along the way.

The Convexity of Long-Term Stock Investing.

As we outlined at the beginning, while the payoff of a long-only stock is highly positively asymmetric, similar to that of a long call option, the payoff is actually convex, both to the upside and the downside, as the stock price grows over time.

Compounding is powerfully convex to the upside, and protectively convex to the downside. Compounding increases at an increasing rate on the upside and decreases at a decreasing rate on the downside.

Compound interest is the eighth wonder of the world because it is convex. Gains grow faster, and losses shrink slower. Those who understand this asymmetry earn it. Those who don’t, pay it. Find winners, hold them, and let time bend the curve in your favour.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

11 Jan 2026 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

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The banyan tree does not ask if the boulder is too hard. It asks how deep the cracks go. It does not wait for perfect soil. It simply sends its roots downward, wrapping around whatever stands in its way, turning obstacles into anchors.

This is nature’s most honest lesson about compounding: time transforms barriers into foundations.

“A tree that reaches the sky must first grow deep roots. The higher you want to rise, the more grounded you need to be.” - Thomas Chua

Look at how this magnificent banyan tree conquers this massive rock face. Before it ever thought about spreading its canopy toward the sun, it spent years and decades weaving its roots into every crack and crevice below first. The spectacular crown you see above ground exists only because of the invisible architecture below.

In investing, we obsess over finding the perfect entry point, the ideal conditions, the moment when all uncertainties vanish. But the banyan tree teaches us that great things grow not despite difficulty, but through it. The gnarled roots are not signs of struggle. They are strengths earned through adaptation.

The rock did not choose the tree. The tree did not choose the rock. Yet interdependence created what neither could build alone. The unyielding boulder and the relentless roots of the banyan tree neither winning, both thriving.

Complexity as Moat.

This is what separates enduring businesses from temporary winners. The best companies do not avoid hard problems, they wrap themselves around them. Amazon did not bypass retail’s complexity; it embraced it until complexity became its moat. Cloudflare did not wait for internet security to get easier, it planted itself in that exact difficulty. They grew deep before they grew tall.

The banyan tree also reminds us: what looks chaotic up close reveals its architecture over time. Those roots seem random, almost reckless. Step back, and you see a system, each tendril finding its path, the whole structure distributing weight and risk across hundreds of points of contact.

Patient capital works the same way. We do not need every investment to work perfectly. We need a system that converts time and pressure into strength, one deep enough that patience and volatility become opportunities rather than threats. We need roots deep enough to weather any storm that tests our height.

“If we are an inch-deep, we will be blown away by the gentlest wind. But if we are a mile deep, we will ride through the toughest winds more than others can.”

The Invisible Decades.

Most profound: the banyan grows slowly in ways you cannot see, dramatically in ways you cannot ignore. For years, it has continued to extend its roots underground. Then suddenly, it explodes upward and outward, drawing resources from depths others cannot reach.

The trees that impress us with instant height fall in the first storm. The ones that take decades to anchor themselves stand for centuries.

Growth does not ask permission from the obstacles. It uses them. And it never reaches for the sky before it is ready to hold that height. In nature and capital alike, depth determines destiny.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

29 Dec 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

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While visiting all the historical sights and attractions, particularly in Chengdu, my curious mind began asking numerous questions, which allowed me to synthesize this mosaic of geography, civilisation, cuisine, and history.

Setting the Stage: The Sichuan Basin

The Sichuan Basin (四川盆地) is surrounded by mountains on all sides and is drained by the upper Yangtze River and its tributaries. The basin is anchored by Chengdu, the capital of Sichuan province, in the west, with the Chengdu Plain and Chongqing in the east.

From Geography to Geography

Sichuan Basin (四川盆地) is sometimes called the Red Basin. It is a lowland region in Southwestern China. 6 million years ago, a large lake filled the Sichuan Basin. The basin’s soils today are predominantly red sandstone, which explains the “Red Basin” nickname. Not surprisingly, the 71m-tall “red”-looking Leshan Giant Buddha (樂山大佛), carved from red sandstone, clearly illustrates this.

The Indian Plate collided with the Eurasian Plate approximately 50-55 million years ago, creating the world's largest mountain range, the Himalayas, along with the Tibetan Plateau, the Hindu Kush, and the Hengduan Mountains.

Not surprisingly, Chengdu City, the capital of Sichuan Province, experiences frequent earthquakes due to the Longmenshan mountain fault zones.

With mountains come rivers. The Tibetan Plateau contains the headwaters of most of the streams and rivers in its surrounding regions. This includes the three longest rivers in Asia (the Yellow River, the Yangtze River, and the Mekong River).

The upper tributaries of the Yangtze River (长江 or 扬子江) flow through the Sichuan Basin, providing water for irrigation to grow crops, and for civilisation.

Most famously, the ancient Dujiangyan (都江堰) irrigation system on the western part of the Chengdu Plain that was constructed around 256 BC (over 2,200 years ago)). provided benefits of flood control and irrigation for the Sichuan Basin.

Rather than constructing a dam, Qin Dynasty (221-206 BCE) statesman Li Bing and his son designed a system that would allow the diversion of water without obstructing its natural flow.

The project was completed by creating three key components: the (1) Fish Mouth Levee (鱼嘴), the (2) Feishayan Channel (飞沙堰), and the (3) Baopingkou Irrigation System (宝瓶口).

These features remain central to the Dujiangyan system today, exemplifying the advanced engineering knowledge of the time and serving as an impressive engineering marvel, as it continues to operate entirely on gravity, without the need for modern pumps or machinery.

From Geography to Weather

Due to the surrounding mountains, the Sichuan Basin often experiences fog (from natural humidity) and smog (from pollution), as both are frequently trapped in the basin. Temperature inversion, where warm air sits above cool air—acts like a lid, preventing either from escaping the “bowl”. As a result, it generally has high humidity and often overcast, gloomy, dark skies (rather than clear blue skies), with limited sunshine year-round, and cool-to-mild, misty winters and hot, very humid summers.

From Geography to Agriculture and Civilization

Because of its relative flatness and fertile soils, the Sichuan Basin can support a high population density, providing staples such as rice, wheat, and barley.

From Geography to Cuisine

The general rule in China is a north-south divide. The colder, drier North primarily consumes wheat-based products (noodles, buns, dumplings), while the warmer South primarily consumes rice. Unsurprisingly, while Sichuan cuisine has both rice and noodles, rice is the primary staple.

Rice is often used as a neutral base to complement the region’s rich, spicy, and flavorful dishes (like Mapo Tofu or Kung Pao Chicken). Noodles are also very popular as an everyday meal or street food, with famous local dishes like Dandanmian noodles (担担面), spicy cold noodles Liangmian (凉面), and Zhajiangmian (炸酱面) noodles, which have peanut sauces.

Fun fact: Peanut, native to South America (Peru, Bolivia, Argentina, and Brazil), was introduced to China by Portuguese traders in the 17th century, to the US during the colonial period, and subsequently by American missionaries in the 19th century. Production began to grow in the 1980s. Think Kung Pao Chicken (with peanuts, not cashew nuts), peanut sauces, peanut noodles, and peanut snacks/desserts.

While Sichuan is the undisputed king, the home of málà (麻辣), that mouth-numbing combination of chili heat and Sichuan peppercorn tingle, it is not just spicy; it is an experience. China’s spicy cuisine belt essentially runs through the humid southwest.

In humid heat, sweat does not evaporate, you cook in your own skin. Spicy food forces more sweating, which finally cools you when it escapes. Fighting fire with fire, literally. Think the fiery, intense spicy Chongqing hotpot.

There is also a preservation angle: humidity breeds bacteria and mold. Capsaicin, the compound that makes chili hot/spicy, has antimicrobial properties. Before refrigeration, spicy cuisines emerged in humid regions partly because chili helped food last longer. So chili does not dry the air. It makes living in wet heat more bearable and makes survival without modern preservation possible.

In addition, chili also helps to mask stale ingredients. Conversely, in the east, particularly in the coastal regions with better access to fresh seafood and produce, the cuisine tends to have a lighter touch, with less heavy seasoning, allowing the fresh produce to shine through. Geography does not just shape what you eat, it shapes what you become.

From Geography to History

The Sichuan Basin was the strategic fortress that shaped the Three Kingdoms era (220-280 AD), following the collapse of the Han Dynasty. Wei (in the north) was led by Cao Cao, his son Cao Pi, and strategist Sima Yi. Shu Han (in the southwest) was led by Liu Bei, with strategist Zhuge Liang, and warriors Guan Yu, Zhang Fei, and Zhao Yun. Wu (in the southeast) was led by Sun Quan, strategist, Zhou Yu, and Sun Ce.

Surrounded by mountains and accessed through treacherous gorges, Sichuan was nature’s citadel. Easy to defend, nearly impossible to invade. Emperor Liu Bei built his entire kingdom in Sichuan. When he lost the battle for central China, Sichuan became his refuge and his power base.

However, the Sichuan Basin was both a blessing and a curse. It kept Shu Han alive for decades against stronger rivals, but the same isolation made it nearly impossible to project power outward after decades of failed northern campaigns.

The same mountains that kept enemies out also kept Shu Han’s armies in. Zhuge Liang launched five major northern expeditions against Wei, and all sputtered out for the same core reasons:

1. Geography was brutal. To attack Wei, Shu had to march through mountain passes and supply armies across hostile terrain. Wei just had to defend chokepoints. Offense is always harder; offense uphill through mountains is nearly impossible.

2. Economics didn’t add up. Shu was the smallest, poorest kingdom—one province against Wei’s nine. Every campaign drained resources Shu couldn’t replenish. Wei could lose battles and recover; Shu couldn’t afford to lose anything.

3. Talent ran thin. Zhuge Liang was brilliant, but he couldn’t be everywhere. When he died in 234 AD, Shu’s brain died with him. Wei had depth; Shu had dependence.

4. Strategic logic was flawed. The campaigns weren’t really about conquering Wei—they were about survival through offense, keeping Wei preoccupied so they wouldn’t invade Shu. Defense disguised as attack. It bought time but burned treasure.

Liu Bei’s dying wish was to restore the Han. Zhuge Liang tried to honor it. But loyalty to a dead dream couldn’t overcome living mathematics. Shu Han fought bravely but inevitably lost.

That is why Shu Han, despite having brilliant strategists like Zhuge Liang, could never quite break through to challenge Wei’s dominance in the heartland of the North China plains (华北平原). They were trying to play offense from the strongest defensive position in China.

Whereas the North China Plain was the most extensive alluvial plain of China, bordered by mountains to the north by the Yanshan mountains, to the west by the Taihang mountains. Specifically, the Central Plains around the banks of the middle and lower Yellow River formed the cradle of Chinese civilization, and is the region from which the Han Chinese people emerged.

See the ethnic map of China below. Han is in bright red, and accounts for 94% of China’s population today.

China is geographically well protected (similar to the US), with the north and west by mountains and the east and west by the seas.

From Geography to Everything

Geography does not just shape civilizations. It shapes everything. The same forces that turned the Sichuan Basin into both fortress and cage govern how companies rise, how investors win, and how lives unfold. Every fortress looks brilliant until you need to leave it. Every advantage hardens into a limitation. This pattern repeats across millennia, from ancient kingdoms to modern investing.

Your Moat Becomes Your Prison.

Shu Han’s mountains kept enemies out but armies in. Companies build defensive moats: loyal customers, proprietary technology, high switching costs, and then discover that those same moats prevent them from expanding into new markets. The thing that protects them eventually confines them. Ask BlackBerry how their keyboard moat worked out. Ask Intel if their x86 architecture saved them from irrelevance. Defense becomes offense becomes history.

Mathematics Beats Ambition.

Zhuge Liang was brilliant, but brilliance could not multiply Sichuan’s grain stores or conjure soldiers from mountain stone. In investing, you cannot manufacture returns from markets that do not exist. In business, you cannot will revenue from customers who are not there. In life, you cannot extract energy you have not cultivated. Economics always wins over ambition. Shu Han died doing exactly what kept it alive, defending mountains it could not escape.

Geography Is Destiny—Until It Is Not.

The North China Plain birthed Chinese civilization because the flat land, water, and soil aligned. In investing, today’s geography is market size, secular tailwinds, and competitive position. Invest in businesses riding massive currents, the Yangtze Rivers of commerce, not isolated mountain kingdoms. Find the disruptors and top dogs commanding vast plains of opportunity (i.e., large total addressable markets), where continued expansion is possible, and resources flow abundantly. The best investments are not defensive fortresses. They are empires with still abundant room to build and grow.

Constraints Sharpen, Then Starve.

Sichuan’s isolation forced innovation in irrigation, cuisine, and defense. But those same constraints prevented Shu Han from accessing the scale needed to survive. Young companies thrive under constraints until they need to scale. Smart capital wins in niches until niches become coffins. The question is not whether you have constraints. You always have them. The question is: are your constraints sharpening you for the short-term or starving you for the long-term?

Concluding Thoughts

The Yangtze River still flows through Sichuan. The mountains still stand. But Shu Han is gone. Geography endures. Dynasties do not. Companies do not last forever. Similarly, management does not, as they have to pass the torch on.

Niche businesses prosper, then calcify, then fade. Without access to vast markets, even genius becomes a footnote. The question is not whether you are smart. It is whether your terrain allows for growth or just survival.

What remains is the pattern: understand your terrain, respect your resources, recognize when your position limits your future, and invest where the plains are vast and the rivers run deep. Geography does not negotiate. Neither should you.

Shu Han had Zhuge Liang, one of history’s greatest minds. It was not enough. Brilliance trapped in a basin is just expensive failure. Don’t be brilliant in the wrong place. Be positioned where brilliance compounds.

References:

Uncharted Territories - Why 50% of the World’s Population Lives in This Circle?

Uncharted Territories - China vs US: Which Geography Is Best?

Uncharted Territories - What China Wants and Why

Uncharted Territories by Tomas Pueyo is one of my favourite Substacks, combining geography, history, and culture, and I highly recommend it.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

8 Dec 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

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Warren Buffett has had numerous investments that did poorly. Yet his biggest regrets remain the winners he did not buy or sell too soon. The losses that haunt great investors are not from capital destroyed, but from compounding never captured. The distinction between what we lose and what we did not capture defines great investing.

I read Nalanda Capital Pulak Prashad’s book titled “What I Learned About Investing from Darwin” back in 2023. It was a delightful read as he intertwines the evolution of nature with investing, with refreshing examples. Highly recommend.

While I share many of his thoughts on his investment approach, which we too employ for Vision Capital Fund, there are a few points on which we differ, particularly around Type I and II errors and mistakes. I wanted to share a slightly different viewpoint.

Understanding Decisions and Errors

Before we jump into Type I and Type II errors, let’s seek to understand how these two errors can arise relative to our hypothesis and decisions as compared to the actual results.

There are four types of decisions: two good and two bad.

Two types of good decisions:

🟢 1) Made a good investment when you thought it was going to be good.

🟢 2) Rejected a bad investment when you thought it was going to be bad.

Two types of bad decisions/mistakes:

🔴 3) Made a bad investment when you erroneously thought it was going to be a good one. These are false positive Type I errors (i.e., Errors of Commission).

🔴 4) Rejected a good investment when you erroneously thought it was going to be a bad one. These are false negative Type II errors (i.e., Errors of Omission).

The table below summarises this in a 2x2 matrix:

Type I Error = Error of Commission = I bought the bad stuff

Type II Error = Error of Omission = I missed the good stuff

All investors will make both types of errors (Type I and Type II). It is unavoidable.

Type I: Your ability to spot bad investments

Type II: Your ability to spot good investments

We cannot get everything right and will get something wrong. If we are consistently getting everything right, we could be playing it too safe and taking too little risk.

Your success with Losers = (1 - Type I Error)

Your success with Winners = (1 - Type II Error)

Your winners define you. Your losers merely limit you.

Focus on reducing Type I errors only?

Pulak argues that one should focus on reducing Type I errors (i.e., wrongly picking losers) relative to Type II errors (i.e., wrongly passing on winners), as this significantly improves the success rate (see formula below).

I expanded his original table (see below) to provide more colour on this point. As seen below, reducing Type I error rates from 25% to 5% significantly increases the success rate from 52% to 84% (+3200bps). On the other hand, reducing Type II error rates from 25% to 5% marginally increases the success rate from 56% to 61% (+500bps).

The biggest mistakes are Type II errors, not Type I errors.

A growing realization from learning from several great investors is that, most often, their biggest mistakes are not from errors of commission (i.e., Type I errors, buying losers) but rather from errors of omission (i.e., Type II errors, passing on winners).

Most of these costly errors stem not from the bad bets they made, but the great opportunities they chose not to pursue. This is because losers become irrelevant (-100%), whereas the winners they missed buying or holding on to went on to become multi-baggers (10X, 20X, 50X, 100X+).

Most often, these errors of omission arose primarily due to two scenarios around their assessment of how expensive good stocks are: (1) they chose to sell because it became “expensive”, or (2) they decided not to buy because it was “expensive”.

“The most important mistakes are ones of omission – those that are missed opportunities. The things I needed to do but did not do them, will constitute my biggest mistakes in life.” - Warren Buffett

Our biggest mistakes were things we didn’t do, companies we didn’t buy.” - Charlie Munger

“If I’ve made one mistake in the course of managing investments it was selling really good companies too soon.” - Peter Lynch

“The biggest mistake investors make is selling great businesses too early. ” - Chuck Akre

“When we find really good ones our experience has been it’s been a mistake to sell them even at very high valuations, you just live through it.” - Chuck Akre

“In our view, it would be a mistake to sell some of these good businesses in order to invest temporarily in companies which are much worse but which have greater recovery potential.” - Terry Smith

“Some of the mistakes of omission that I’ve made over the years would be if you had a really good public investment and you found a company that you thought was doing a really good job, and you had some notion for what it was worth, and you thought it was selling at a discount and you bought it. Then it went above that, above your target price...and you sold it. Then you proceeded to realize that probably that sale in the long run was not wise because the things that made that business good continued largely in place and it compounded year after year after year after year.” - Tom Gayner

“My worst mistakes are all mistakes of omission. The great companies within my circle of competence that I didn’t buy.” - François Rochon

“Selling your winners too early is one of the biggest mistakes you can make. A stock with a weight of 1.5% within your portfolio that goes down 7% ‘only’ represents a 0.1% loss in capital. However, when you sell a company that had a 4% weight in your portfolio and that goes on to rise with 200%, it will cost you 8%. You may not see it, but such opportunity costs are real.” - François Rochon

The evidence is overwhelming: many of the greatest investors universally agree that their most painful mistakes were not the bad companies they bought (i.e., Type I errors, errors of commission, buying losers), but it was the great companies they chose not to buy or sold too soon (i.e., Type II errors, errors of omission, passing on winners).

Better to focus on reducing both Type I and Type II errors.

Pulak argues that Warren Buffett is the best investor in the world because he is the best rejector in the world (reducing Type I errors). Instead, I think Warren Buffett is one of the best investors because he knows what to reject (losers) and also what to look for (winners). A few winners, like Apple, Coca-Cola, American Express, See’s Candies, and GEICO, drove the majority of Berkshire Hathaway's 47 years of outperformance (in addition to the leverage of the insurance float).

It is not about solely choosing to reduce one error or the other. Rather than focusing directly on lowering either of the Type I and Type II error rates, one can choose to focus on increasing one’s ability to pick winners and avoid losers, which indirectly reduces both Type I and Type II error rates. For example, we seek to aim for a 60-80% long-term batting average by combining both actions. It is not one or the other.

Winner’s Game versus Loser’s Games.

There are two types of games in skilled games (e.g., tennis): (1) a winner’s game and (2) a loser’s game. A winner’s game is won through hitting incredible winning shots with superior skill and positive actions. A loser’s game is won by avoiding and minimizing unforced errors and negative actions. Amateur games are typically losers’ games, and professional games generally are winners’ games.

Active stock investing has long been argued to be a loser’s game (e.g., Charles Ellis in Winning the Loser’s Game), in which, while it is possible to outperform the market, the odds are so poor that it is not prudent even to try.

Instead, my firm belief is that one can outperform the stock market. While it is not easy and certainly requires a lot of hard work, I have sought to prove it can be done, first as an individual investor for over 7 years with Vision Capital, Vision Give Back Fund, and more recently, while still in the early days, to seek and repeat it for the next few decades as a professional investor with Vision Capital Fund.

Asymmetry of owning Stocks.

So far, we have discussed only probabilities that assume symmetric outcomes (i.e., a win = a win, a loss = a loss), and the success rate treats both wins and losses equally.

This is where the critical flaw resides. It ignores the asymmetric payoffs of buying stocks. When one buys a stock (i.e., long-only without margin/leverage), the maximum it can go down is -100%, which seems a lot, but the downside is actually capped at -100%. Conversely, the maximum a stock can go up is theoretically infinite (i.e., 10X, 20X, 50X, 100X+ for multi-baggers), effectively unlimited upside.

While the payoff of a long stock position at a given time might look seemingly symmetrical, the payoff of a long stock position over a long period of time is actually highly asymmetrical.

Effectively, each long stock position is a synthetic long call option, and a portfolio of carefully selected stocks becomes a portfolio of synthetic long call options.

Losers can only hurt you once, taking at most 100%. Winners can save you endlessly, returning 10X, 50X, 100X, or more. This is not a small edge, it is the entire game.

“…has alpha, the impact will show up in asymmetrical returns. If her returns show no asymmetry, the investor doesn’t have alpha…Flipping that over, if an investor doesn’t have alpha, her returns won’t be asymmetrical. It’s as simple as that."

- Howard Marks (What Really Matters - Nov 2022)

Howard Marks said it well. Asymmetry changed everything I thought about stock investing. Asymmetry is the holy grail in finance. If an investor has alpha, it will show up in asymmetrical returns. Conversely, if the investor lacks alpha, his returns will not be asymmetric.

Asymmetry makes it both a Winner’s and a Loser’s game.

Active stock investing is not a loser’s game or a winner’s game. It is both, simultaneously, due to asymmetrical outcomes. You must avoid losers like an amateur defending against unforced errors, while hunting winners like a professional taking calculated shots. The critical insight: losses have a floor, gains have no ceiling. Miss the defensive game and you bleed. Miss the offensive play, and you never compound. Miss the asymmetry and you misunderstand everything.

This highly favourable asymmetric risk-return profile results in positive skew and extreme power laws, with the right tails and a minority of very few long-term winners accounting for the majority of returns.

This is consistent with observations from the global public stock market, where ~1% of the ~63,000 companies accounted for ~90% of total net returns over 30 years from 1990-2020 (see below).

Over 30 years, 1% of companies created 90% of all stock market wealth. The math is brutal and beautiful: find the few that matter, hold them while they compound, and let asymmetry do what textbooks say is impossible.

To win, swing both probabilities and payoffs in your favour.

Great investing is about swinging the probabilities and payoffs in our favour:

1. Lose less often → Avoid most losers (bad traits to avoid)

2. Lose less bad → Losses from losers don’t hurt, limited downside (no short-selling, leverage, derivatives, hedging)

3. Win more often → Higher chance of finding winners (good traits to seek)

4. Win much more → Unlimited upside from winners (multibaggers)

Focus on reducing your Type I errors first (what to avoid)

Ultimately, you have to build your own list of what a bad investment likely looks like. More often, we realise that the more of these traits a company has, the poorer it tends to be, and the higher the likelihood of eventual continued underperformance.

Focus on reducing Type II errors next (what to seek)

Likewise, you must build your own list of traits that define a good investment. Similarly, it is often tough for one to possess all traits, but we have found that when a company has more of these traits, it tends to continue its outperformance.

Winners power outsized outcomes and outperformance.

If the investment strategy is well employed, the gains from the multi-bagger winners will tend to drive the majority of overall gains, overwhelming the losses from all the losers by many times over. Diversification is the strategy, and growing concentration then becomes the outcome.

An investment portfolio should naturally become more concentrated over time, driven by the largest positions that have earned the right to be so. After all, if a stock is going to be the next multi-bagger, a little is all we need, if not, a little is all we want.

The Only Scorecard That Matters

The investing industry obsesses over batting averages and success rates. These metrics feel scientific, measurable, and reassuring. They are also mostly irrelevant.

What matters is this: Did you own enough of the right businesses while they compounded?

Type I errors hurt your ego and subtract percentage points. Type II errors haunt your returns for decades and cost you multiples of your capital. The first makes you feel foolish for a while. The second makes you permanently poorer.

Asymmetry is not a bug in the market, it is a feature that enables outperformance. Stocks can fall 100% but rise 10,000%. This lopsided math means your few winners will overwhelm many losers, provided you find those winners and hold them through temporary overvaluation and multiple price declines along the way.

The great investors you admire do not have perfect track records. They have something better: they owned the right companies through the right decades. Every legendary track record is built on multi-baggers held long enough to matter.

Your job is not perfection. Your job is to build a system that:

• Filters out obvious losers, so nothing kills your portfolio

• Identifies potential winners before they’ve fully compounded

• Holds winners even when they look expensive

• Accepts being wrong often because asymmetry protects you

We seek traits that predict winners and avoid traits that signal losers. We diversify to give ourselves shots at multi-baggers. We hold when everything screams “sell”—because we’ve learned the most expensive word in investing is “sold.”

After all, if a stock will become your next 50-bagger, a small position is all you need. If it won’t, a small position is all you want. Let your winners prove themselves by getting bigger.

The winners you own will define your wealth. The winners you pass on will define your regrets. Choose carefully which list you want to be longer.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

10 Nov 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

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Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

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Executive Summary

Investors have been fascinated with return on invested capital (ROIC) and, in particular, seek to invest in businesses that can generate high ROICs. And for good reason, the higher the ROIC, the better the business. Yet, businesses with high ROICs alone are insufficient to generate strong long-term investment returns.

Warren Buffett says you can’t earn returns higher than a company’s ROIC. He is right and wrong. This incomplete and false understanding often leads unknowing investors to chase only high-ROIC companies, thinking they can achieve returns similar to those of the high-ROIC companies.

“The higher return a business can earn on its capital, the more cash it can produce, the more value is created. Over time, it is hard for investors to earn returns that are much higher than the underlying business’ return on invested capital.” Warren Buffett

We seek to explain why a company with a high ROIC would not necessarily deliver a similar high long-term total shareholder return.

In addition, businesses must be able to continue reinvesting capital at an attractive ROIC that allows them to grow revenue, earnings, and free cash flows strongly and compound for a long time.

It is not one or the other; it has to be both (unless the business’s valuation/price is really low). Unfortunately, there are very few companies that can do both, especially over a long period. When we find one, we seek to hold on to them for as long as we can.

We seek to write a basic yet sufficiently comprehensive primer on value creation, what ROIC is, and when reinvestment and growth are good (which is what we want), and provide a practical framework for understanding a business's ROIC, reinvestment, and growth, and to tie it all back into investing and forward returns.

PART 1: FOUNDATIONS

• What is ROIC & why it matters

• How is value created

• What is the cost of capital for companies

• How to link value creation with ROIC, WACC & growth

• How do a company’s business decisions drive long-term value creation

PART 2: THE REAL WORLD

• What is the challenge of intangibles with ROIC

• How much to pay for high vs low ROIC companies

• Which industries tend to generate higher ROICs

• What sustains a business with high ROIC

• What competitive advantages can sustain high ROICs

• How do ROICs tend to evolve over time

• How do companies with high/low ROICs evolve over time

• How do companies’ ROICs vary across business cycles

• How many companies out there actually have high ROICs

PART 3: ROIC & RETURNS

• What are the primary business strategies to achieve high ROIC

• Why is the ability to reinvest at high ROIICs important

• Why does earnings growth matter to investors

• How do ROIC and reinvestment rates drive earnings growth

• Why higher growth and higher ROIC drive higher value

• What does higher ROIC and earnings growth mean for valuations

• How do we link a company’s ROIC across its corporate lifecycle back to investing

PART 4: INVESTOR PLAYBOOK

• Why does high ROIC not necessarily mean high returns

• How does ROIC tie back to Free Cash Flows

• How have higher and lower ROIC companies performed historically

• Bringing it all together.

PART 1: FOUNDATIONS

Two timeless truths about value creation.

1. Companies thrive when they create economic value for their shareholders.

2. Companies create value by investing capital at rates of return that exceed their cost of capital.

What is ROIC?

Let’s start with the definition of Return on Invested Capital (“ROIC”). ROIC is essentially net operating profit after tax (NOPAT) divided by invested capital (IC).

ROIC is a measure of value creation. NOPAT is a business's cash earnings that exclude financing costs, meaning it is the same regardless of how a company chooses to finance itself —by equity or debt.

The denominator, invested capital, is equivalent to the net assets a company needs to run its business (operating) and how it finances those assets (financing).

There are two ways to calculate invested capital: either from the (1) asset or the (2) liability side of the balance sheet.

Because balance sheets balance, both approaches are equivalent.

How is value created?

Companies create value for their owners by investing cash now to generate more cash in the future. The amount of value they create is the difference between cash inflows and the cost of the investments made, adjusted for the time value of money and the riskiness of future cash flows.

Essentially, a business is only valuable if it can generate sufficient cash flows in the present and future that far outweigh the cost of capital paid throughout the periods.

The more cash flows it can generate, the more valuable the business. This is something that companies tend to have more control over.

The lower the cost of capital, the more valuable the business. However, the cost of capital (i.e., interest rates) fluctuates wildly over the long term (as we explain below), and companies tend to have far less control over it in the short term.

What is the cost of capital for companies?

Every company generally raises capital through two primary methods:

(1) Equity, which involves selling a portion of the company’s ownership to investors

(2) Debt, which involves borrowing money that must be repaid with interest

The cost of capital for businesses is the weighted average cost of capital (WACC), which is the weighted average of the cost of equity and the after-tax cost of debt.

Most companies (excluding financials and real estate) that raise debt typically do so through long-term, fixed-rate debt. As such, borrowing rates usually reflect a credit risk premium and a term premium relative to the prevailing benchmark interest rate. In general, the poorer the company’s ability to generate cash, the weaker its balance sheet, the longer the debt tenor, the higher the cost of borrowing, and vice versa.

Fluctuations in the prevailing benchmark interest rates affect only new incremental debt to be refinanced, not all existing debt. Thus, it becomes ridiculous to keep adjusting the cost of debt daily just because the benchmark interest rates (e.g., USD 10-year Treasury yields) are changing at the marginal rate.

Risk-free interest rates (e.g., USD 10-year Treasury yields) are cyclical and tend to follow market/business cycles, and typically exhibit a negative correlation with market returns and the equity risk premium (ERP), which is market returns less the risk-free rate. If you look at the historical chart of the US cost of equity, it has been range-bound between 6% and 10% over the last 30 years.

Interestingly, higher interest rates do not necessarily lead to a higher cost of equity or a higher WACC, as lower market returns and lower equity risk premiums often offset the effect, and vice versa. Similarly, it is silly for one to keep adjusting the cost of equity daily in response to changes in interest rates or market returns. It is far better to assume an average market-cycle rate that is approximately right than to be precisely wrong.

How to link value creation with ROIC, WACC & growth?

If ROIC exceeds WACC, value is created. But if ROIC is similar to WACC, no value is created. And if ROIC is lower than WACC, value is being destroyed. The more positive the spread between ROIC and WACC, the more value is being created. Vice versa, the more negative the spread, the more value is destroyed.

Not all growth creates value. The answer is that it depends on how profitable the business is and how high its ROIC is relative to its cost of capital. If ROIC exceeds WACC, growth increases value, and a company should reinvest.

But if ROIC is similar to WACC, growth creates no value. And if ROIC is lower than WACC, growth destroys value. The company is better off in both scenarios: not reinvesting and instead focusing on improving its ROIC.

Companies create value by earning a return on invested capital (ROIC) greater than the cost of capital. The more they can invest at returns above the cost of capital, the more value they create. Growth only creates more value as long as the ROIC exceeds the cost of capital.

If ROIC is at or below the cost of capital, growth will not create value. Instead, it will destroy value. Companies should aim to find the optimal long-term combination of growth and ROIC that drives the highest discounted value of their future cash flows.

How do a company’s business decisions drive long-term value creation?

Below is the self-explanatory flowchart that ties back to how much a company makes, its investing and financing decisions, and ultimately to ROIC and economic value added (EVA), to understand the long-term drivers of value creation.

A company’s revenue and expense decisions shape its operating profit, while investing decisions determine how much capital is deployed into working capital and capital assets. The magic happens when post-tax operating profit meets invested capital, producing ROIC. But ROIC alone does not tell the whole story.

Only when ROIC exceeds the weighted average cost of capital (shaped by financing decisions) does reinvestment and growth create positive economic value. In essence, every business decision of pricing, spending, investing, and financing flows into a single outcome. Is a business eventually earning more on its capital than it costs to obtain, and able to keep reinvesting that capital for faster growth? That is the difference between businesses that create and grow value and those that fail to do so.

PART 2: THE REAL WORLD

What is the challenge of intangibles with ROIC?

Before we dive deeper, we must address a critical measurement problem that affects nearly every modern business. The numbers we see on balance sheets are no longer accurate. Not intentionally, but accounting rules written for the industrial age struggle to capture value in the digital age.

This makes high-growth tech companies appear less profitable and more expensive than they actually are. If we do not understand and adjust for this distortion, we will systematically undervalue the best businesses of our era.

Here is what’s really happening...

The chart below shows the capital stock of US public companies from 1985 to 2020. Intangibles (e.g., intellectual property, brands, and networks) have been growing faster than tangibles (e.g., property, plant, and equipment) and are estimated to comprise 42% of the capital stock in 2020.

Tangible investments, which are physical, dominated in years past. Intangible investments, which are nonphysical, are much more prominent today. The rise of intangibles relative to tangibles over the past few decades is expected to continue strongly.

Capitalization is the accounting practice of recording a cost as an asset on the balance sheet and recognizing its cost over its useful life. Currently, all tangible and intangible assets, whether purchased or acquired via M&A, are capitalized on the balance sheet and expensed in the income statement over their useful lives.

However, internally generated intangibles are not capitalized and are immediately expensed on the income statement rather than recorded on the balance sheet and amortized over time. This is because accountants are uncertain about the sales that these investments may generate. So, to be conservative, they do not apply the matching principle of sales and expenses, and expense the outlays immediately. This causes near-term expenses to rise, profits to fall.

This significantly depresses near-term profitability, making companies that are spending a lot on intangibles seem less profitable than they really are and more expensive by conventional valuation metrics (e.g., price-to-book (PB) or price-earnings (PE) ratios), particularly when they are heavily reinvesting early on.

How much to pay for high vs low ROIC companies?

In general, as the chart below shows, higher-ROIC companies are valued at higher multiples of enterprise value (EV) per invested capital. Vice versa, the market tends to price lower-ROIC companies at much lower EV/invested capital multiples. Sometimes, seemingly “expensive” and “cheap” companies are priced as such for a reason, and it is crucial to zoom out and realize what you are buying. In short, high-ROIC companies tend to be expensive, and low-ROIC companies tend to be cheap.

Which industries tend to generate higher ROICs?

Below are the traditional and adjusted (for intangibles) ROICs for the 80th to 20th percentile by each industry of the Russell 3000 from 1990 to 2021, compiled by Michael J. Mauboussin.

The adjustment takes selling, general, and administrative (SG&A) expenses and reclassifies them as investments, increasing NOPAT and invested capital. While this reclassification does not affect free cash flow (FCF), the main driver of corporate value, the adjustment provides a more accurate return on capital.

What should be apparent from the second chart below is that the best companies in specific sectors (i.e., 80th percentile) tend to generate much higher ROICs. For example, looking at adjusted ROIC, the sectors are software, computer & peripherals, semiconductor equipment & products, IT consulting & services, communications & equipment, internet software & services, internet & catalog retail, biotechnology, and tobacco. Excluding biotechnology (outside our circle of competence) and tobacco (which does not align with our Vision Investing philosophy), these are also the sectors in which most of the companies that we tend to prefer and invest in.

What sustains a business with high ROIC?

Companies only create value when they (1) keep growing durably for an extended period of time, and (2) earn a return on capital that exceeds their cost of capital consistently.

For a company to keep growing fast, there must be a significant opportunity and a large total addressable market (TAM) to reinvest new capital at high returns relative to costs and to penetrate and gain market share. The faster they can grow, the greater the cash flows and value creation.

Conversely, competitive advantage is what sustains growth and high ROIC. Companies with attractive profitability will tend to attract new entrants seeking to compete profits away from the incumbents, causing ROICs to mean-revert.

A business with a wide moat and numerous competitive advantages in a highly monopolistic/duopolistic/oligopolistic market structure with strong unit economics tends to sustain higher ROIC durably over extended periods.

What competitive advantages can sustain high ROICs?

A company’s competitive advantages derive from a combination of ten sources, as outlined in the table below.

Of these, five (i.e., innovative products, quality, brand, customer lock in, rational price discipline) allow companies to charge a price premium, four (i.e., innovative business method, cornered resource, economies of scale, scalable product/process) contribute to cost and capital efficiency, and one (i.e., network effects) combines price and cost advantages to produce increasing returns to scale.

Businesses with the highest returns are often those that weave together multiple of these competitive advantages. The most significant potential for superior ROIC lies in increasing network effects (our preferred), which is difficult to achieve and rare.

How do ROICs tend to evolve over time?

Thus, it is not just about solely focusing on ROIC, but on how high ROIC is relative to the cost of capital, whether it is increasing, and whether it can be maintained at elevated levels.

The bottom line: ROICs tend to revert to the mean, primarily due to size, competition, and maturity. How long ROICs mean-revert, whether over quarters or decades, ultimately depends on the strength of a company’s competitive advantage.

The challenge is to find companies that can defy expectations by maintaining, or even improving, their ROICs. We must evaluate whether a business can sustainably and durably maximize its future economic profit rather than on ROIC alone.

How do companies with high/low ROICs evolve over time?

The chart below breaks down annual ROICs by quintiles (20% slices) and allows the universe to be reshuffled. It becomes clear that the best companies with superior ROICs tend to maintain them. Companies with poor ROICs tend to stay that way.

Because great companies tend to stay great, and lousy companies tend to remain awful, we must focus solely on the top companies with the highest ROICs, and those in which we have a high degree of confidence will likely get there.

As long as the company’s ROIC is not structurally declining during weaker times, we must have the temperament and patience to hold on to them, and as long as the thesis remains intact, even be willing to double down and invest more when they are beaten down, which often follows lower profitability from heavy reinvestments.

How do companies’ ROICs vary across business cycles?

The chart below shows the traditional and aggregate ROICs for the Russell 3000.

The ROIC path for most companies is far from linear and smooth sailing. ROICs, in aggregate, often zigzag with business cycles. Sometimes companies go through periods of heavy investment, and sometimes these taper off, allowing them to benefit from prior investments later on.

How many companies out there actually have high ROICs?

The chart below shows the distribution of ROICs for the Russell 3000 (3,000 of the largest US stocks by market capitalization), excluding the financial and real estate sectors, using traditional and adjusted ROICs.

Companies with the highest ROICs are more likely to generate strong economic profits, which, in turn, lead to stronger shareholder returns over time.

That is also why we prefer to focus on companies that either have (1) high ROICs we think can sustainably maintain, or companies with (2) rapidly improving ROICs that can be very strong.

Looking at the entire universe of over 55,000 publicly listed companies (primary securities), the distribution is even more pronounced and power law-driven than that of the Russell 3000.

Only a small percentage of the entire universe (55,321 companies) has very high ROICs: ~5.5% have >20% ROIC, ~3.6% have >25% ROIC, ~2.4% have >30% ROIC, and ~1.5% have >40% ROIC.

PART 3: ROIC & RETURNS

What are the primary business strategies to achieve high ROIC?

High ROIC that exceeds the cost of capital reflects competitive success resulting from a company’s business strategy. Decomposing ROIC to understand a business’s strategy and how it generates returns can provide clues about its competitive advantage and help us assess its sustainability.

By adding sales to both the denominator of NOPAT and the numerator of invested capital, we can further break down ROIC into NOPAT margin and invested capital turnover. NOPAT margins measure profitability, and invested capital turnover measures capital efficiency. Sales cancel out when both terms are multiplied.

Companies can pursue two different generic business strategies to achieve the same high ROIC. Typically its either through (1) differentiation (bottom right) where a company is selling its goods or services at a premium to others with higher profitability with higher NOPAT margins but at significantly lower volumes and lower invested capital turnover, or through (2) cost leadership (upper left) selling its goods or services at a relatively lower price with lower profitability and lower NOPAT margins but at significantly higher volume and higher invested capital turnover.

The chart below plots the top 500 companies in the Russell 3000 (excluding financials and real estate) by their ROIC drivers: NOPAT margins and invested capital turnover. Retailers like Target, Walmart, and Home Depot (at the top left) operate at lower profitability but with much higher sales turnover.

Low profit margins do not necessarily mean poor businesses; if they can operate efficiently with higher turnover, they can still be high-ROIC businesses.

Conversely, service companies like Mastercard and Microsoft (at the bottom right) operate with higher profitability and lower sales turnover.

It is imperative to avoid the no-man ’s-land of low-ROIC, low-turnover companies.

Adjusting for intangibles leads to higher NOPAT and invested capital, and since sales remain unchanged, NOPAT margin rises while invested capital turnover declines. Directionally, the insights remain intact.

The best companies will have to choose between being differentiators and cost leaders to generate high ROICs. As investors, you should know which of the two primary business strategies the companies you own belong to.

Why is the ability to reinvest at high ROIICs important?

ROIC is a static snapshot in time. How ROIC changes over time matters as well. One should focus not just on the absolute ROIC, but also on return on incremental invested capital (ROIIC). Think of ROIC as stock, and ROIIC as flow. If incremental capital is reinvested at ROIICs that are even higher than high ROICs, it will drive ROICs higher over time, and vice versa.

ROIIC is the ratio of the change in NOPAT and the change in invested capital. Yet be aware that annual ROIIC calculations can be highly noisy and volatile, especially for businesses with volatile NOPAT and lumpy investments. Focus directionally on the longer-term trend instead.

Why does earnings growth matter to investors?

Revenue growth translating into earnings growth is the single most significant contributor to rising stock prices. If companies can keep growing earnings for years and decades, and if the stock market is not too exorbitantly expensive, one will likely still end up with a fine-looking result. Earnings are the weighing machine for stock prices over the long term. When you realize this, pretty much everything else is noise.

“In the short run, the market is a voting machine but in the long run it is a weighing machine.” - Benjamin Graham

For top performers, long-term revenue, earnings, and free cash flow growth are the most important long-term drivers of shareholder returns for companies with high returns on capital (i.e., 95% for 10-year total shareholder returns).

Notably, companies with negative working capital have lower invested capital and, accordingly, tend to have higher ROICs. Very few companies have negative working capital, and we tend to prefer those that do.

How do ROIC and reinvestment rates drive earnings growth?

The reinvestment rate measures the percentage of earnings that a company plows back into the business every year (i.e., reinvestment / net income).

ROIC measures the return the company makes on these reinvested earnings.

Let’s go through three scenarios with varying earnings growth, reinvestment rates, and ROICs, and hopefully by the end, you will begin to appreciate the importance of companies with high ROICs and their ability to reinvest.

Scenario 1: The Higher the ROIC, the lower the Reinvestment Rate

High ROICs are great because that means that a company does not need to invest a lot of its earnings back into the business for earnings to grow fast, and it has the flexibility to use the excess earnings to repay debt, buy back stock, pay dividends, make acquisitions, or do nothing with them. Conversely, low-ROIC companies need to reinvest more capital to achieve the same growth.

Scenario 2: For the same Reinvestment Rate, the higher the ROIC, the higher the Earnings Growth

Higher ROICs at the same reinvestment rate allow companies to drive even faster earnings growth, which ultimately leads to more value creation over time and, correspondingly, higher valuations and higher returns.

Scenario 3: For the same ROIC, the higher the Reinvestment Rate, the higher the Earnings Growth

For the same ROIC, if a company lacks sufficient reinvestment opportunities and can only reinvest at lower rates, it will grow earnings more slowly. The shareholder return would then approximately be the sum of (1) earnings growth, (2) the earnings yield (i.e., earnings/price), and (3) any change in PE valuation multiples, and if the company is expensive (i.e., high valuation multiples), then the prospective returns are likely to be even poorer.

That’s why, if an investor’s strategy is to buy more mature “high ROIC” companies at the top of a company’s growth S-curve with little reinvestment opportunities and low single-digit organic growth, the price at which we buy these companies matters more.

Conversely, suppose an investor’s strategy is to buy faster-growing “high/rapidly improving ROIC” that can sustain their high ROICs, and are still in the early innings of their S-curve, and have plenty of runway to keep reinvesting for decades and grow earnings durably. In that case, the price matters less, as earnings growth would likely drive most of the future returns.

Why higher growth and higher ROIC drive higher value?

Assuming a WACC of 10% and starting NOPAT of $100m, it becomes clear in the chart below that (1) for the same growth rate, higher ROICs drive higher value, and (2) for the same ROIC, higher growth drives higher value. It is not either or, but both.

What does higher ROIC and earnings growth mean for valuations?

It is silly for investors to say one company is “expensive” or “cheap” based on absolute or relative valuation multiples alone (e.g., price-earnings, EV/FCF, etc.) without considering how profitable they are, ROIC-wise, and how high their earnings growth is (via reinvestment rates). Trying to do so is foolishly comparing apples to bananas.

Using a simple perpetuity formula (see derivation below) of assuming the same earnings growth and ROIC into perpetuity, it becomes evident that the higher the ROIC and earnings growth, the higher the PE valuation multiple should be.

Vice versa, the lower the ROIC and earnings growth, the lower the PE valuation multiple should be. Both ROIC and earnings growth determine whether a company should trade at higher or lower valuation multiples.

PE valuation multiples increase for higher ROICs alongside higher earnings growth. This is because the ability to reinvest at high ROIC drives greater value creation, making the companies even more valuable.

Conversely, when ROIC equals the cost of capital at 9.5%, earnings growth neither creates nor destroys value, and the PE valuation multiple remains unchanged at 10.5.

Even worse, when the ROIC is 8.5% or lower than the cost of capital at 9.5%, choosing to reinvest more and grow faster will quickly destroy value, making the company worth less and leading to a decline in PE valuation multiples.

How do we link a company’s ROIC across its corporate lifecycle back to investing?

It is crucial to continually assess a company's life cycle to determine whether it (1) can maintain strong ROICs and (2) has sufficient opportunities to reinvest capital to grow.

As a company moves from the growth phase to the mature phase, the attractiveness of investing new capital declines. It gradually finds lower and declining ROIICs for new incremental capital. Investing more capital at ROIICs below the current ROIC will only further pressure ROICs downward over time.

In this case, the company will be better off reinvesting much less to maintain its high ROICs, which then leads to rapidly decelerating revenue growth.

Typically, when a business chooses to start returning huge swaths of capital to shareholders through dividends or share buybacks, it generally implies that it sees fewer attractive opportunities to reinvest in the business than before, highlighting signs of a company’s lifecycle maturity.

Low revenue and earnings growth likely translate into low price returns for investors over time, and a much larger share of total shareholder returns will come from the price paid (i.e., the earnings yield) rather than from earnings. In such a scenario, the price paid has to be reasonable and sufficiently attractive.

For example, if a high-ROIC 20% company now grows revenues/earnings at 5% and trades at a 25x PE (i.e., a 4% earnings yield), the long-term returns are unlikely to be significantly different from ~9% p.a. (i.e., 5% p.a. + 4% p.a.).

What becomes clearer is that overpaying for mature, slower-growing, high-ROIC companies would likely be much more disastrous than “overpaying” for younger, faster-growing, improving, or high-ROIC companies with a long growth runway. The latter is what we prefer to focus on rather than the former.

PART 4: INVESTOR PLAYBOOK

Why does high ROIC not necessarily mean high returns?

There is a common misconception that if you own a high-ROIC business for a long time, you will earn returns similar to its ROIC. This often leads investors to chase only high-ROIC companies, without considering reinvestment opportunities/rates and earnings growth.

The popular quote below by Charlie Munger talks about this.

“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.”

- Charlie Munger

Conversely, if a company has high ROIC, is a more mature business, closer to the top of its S-curve, and has slower growth (i.e., <5%) due to limited opportunities to reinvest its capital at high returns, it would likely have to return most of the excess earnings to shareholders.

The prevailing stock valuation at which these earnings come back to shareholders matters much more to shareholder returns than the high ROIC itself.

High returns need high ROIC + high reinvestment. It’s not ‘or,’ it’s ‘and.

Suppose a 19.5% ROIC company is unable to reinvest any capital and does not grow earnings. Assume it trades at a 15x PE (assuming no change in valuation multiples), if the company chooses to return 100% of that capital via share buybacks or dividends, it would be an implied 6.7% (1/15) earnings yield that the shareholder will effectively indirectly receive via buybacks/dividends/higher enterprise value, and adding the 0% earnings growth, would render a significantly lower combined total shareholder return of 6.7% as compared to the company’s much higher ROIC of 19.5%.

Whereas if this 19.5% ROIC company reinvests more of its earnings to achieve higher earnings growth, its total shareholder returns tend to converge to the higher combination of its earnings growth and its earnings yield (assuming no change in PE valuation multiples). The math is counterintuitive. The implications are profound.

Notably, the price (i.e., PE ratio) matters much more when earnings are growing much more slowly, and matters less when earnings are growing much faster.

High ROIC is necessary but not sufficient. The best investments combine high returns on capital with abundant opportunities to reinvest at those high returns. ROIC without reinvestment is like having a Ferrari without a road. The potential is there, but you cannot compound it.

The below ROIC and Reinvestment matrix sums this up best:

How does ROIC tie back to Free Cash Flows?

The concepts of free cash flows, ROIC, and economic profits have common roots.

Free cash flow (FCF) is the cash a company can distribute to its claimholders, equal to NOPAT minus investment (versus the more commonly used cash flow from operating activities minus capital expenditures). Free cash flows should be adjusted for stock-based compensation, financing costs, and lease-related investments.

ROIC is NOPAT divided by invested capital, a measure of cumulative net investment. Economic profit is ROIC minus WACC times invested capital and measures a company’s residual income after considering the cost of capital.

A discounted cash flow (DCF) model based on either (1) free cash flow (FCF) or (2) economic profit (with ROIC, WACC, and NOPAT) will yield the same answer if the inputs are the same and the analysis is conducted correctly (see example below). Mathematically, companies with higher ROIC will generate more free cash flows per dollar of earnings.

How have higher and lower ROIC companies performed historically?

Below are two charts (while dated) that show that, historically, companies with higher ROICs tend to deliver stronger returns, while companies with lower ROICs tend to deliver poorer returns. Excellence compounds. Mediocrity multiplies.

Bringing it all together.

Understand the basics of value creation. Free cash flows are inextricably linked to ROIC. Focus on finding companies that are top dogs riding secular tailwinds with large total addressable markets (TAMs) operating in industry market structures servicing that tend to become more monopolistic/oligopolistic in nature that typically result in winners take all/most outcomes, that have strong and multiple competitive advantages (including network effects), providing products and services that customers love and want to keep using, and are willing to pay more for, coupled with strong profitability and unit economics, run by solid stratgic long-term focused management, backed by solid balance sheets, negative working capital, leading to high or increasing ROIC, providing strong opportunities to keep reinvesting to grow revenues, earnings, and free cash flows strongly over time, creating value, and in doing so compounding for long periods of time.

As investors who seek long-term outperformance, we have to continue to find these compounders early, buy them (even when they might seem “expensive” by conventional measures), hold them (through all the ups and downs), and even add to them (during the downs).

It is not rocket science. But you need a solid psychological and behavioral mindset to hold them through both the good and tough times, through the highs and lows. It is pretty much all that matters for long-term market-beating returns.

Reference Materials

The End of Accounting and the Path Forward for Investors and Managers, 1st Edition - Baruch Lev and Feng Gu (2016)

Valuation: Measuring and Managing the Value of Companies, University Edition (Wiley Finance) 8th Edition - Tim Koller, Marc Goedhart, David Wessels, McKinsey & Company Inc.

The Equity “Compounders:” The Value of Compounding in an Uncertain World (2016) - Bruno Paulson and Christian Derold

Investing in the Intangible Economy (Oct 2020) - Kai Wu, Sparkline Capital

Why Return on Invested Capital Is the Most Important Investing Metric (May 2022) - John Rotonti

Return on Invested Capital: How to Calculate ROIC and Handle Common Issues (Oct 2022) - Michael J. Mauboussin and Dan Callahan. CFA

ROIC and Intangible Assets: A Look at How Adjustments for Intangibles Affect ROIC (Nov 2022) - Michael J. Mauboussin and Dan Callahan. CFA

Capital Allocation: Results, Analysis, and Assessment (Dec 2022) - Michael J. Mauboussin and Dan Callahan. CFA

ROIC and the Investment Process: ROICs, How They Change, and Shareholder Returns (Jun 2023) - Michael J. Mauboussin and Dan Callahan. CFA

Total Shareholder Return: Linking The Drivers of Total Returns to Fundamentals (Oct 2023) - Michael J. Mauboussin and Dan Callahan. CFA

Capital Allocation (Nov 2025) - Michael J. Mauboussin and Dan Callahan. CFA

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

2 Nov 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

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1 | The best part of you is you. Just be you.

My mom, tucking me in and insisting, “Bill, the best part of you is you.”

because my mother repeatedly told me, often in the same breath, that “anything worthwhile in life does not come easy” and that “you have the potential to do anything you set your mind to.”

I take a seat and a deep breath and hear my mom’s voice: “Bill, there’s no ceiling on you. There’s nothing that you cannot do. Just remember, be yourself, that’s the most important part of you. Just be you.”

2 | Simplicity provides clarity, complexity hides clarity.

Simplicity was not about being small, simple-minded, or easy. On the contrary, simplicity was sophistication in disguise. Simplicity prioritized. Simplified ideas invited everyone in and freed people to see the world from a sharper but shared lens. Complexity, on the other hand, could intimidate and confuse. Tangled language and multilayered strategies gave way to a briar patch of indecision. Arguing pros and cons was important, and could be enjoyable, as long as doing so did not overcomplicate the issues. In business, endless discussion could kill a company; healthy debate birthed action. Through my conversations with Hasso, I knew that he, too, was a strong believer in the power of simplicity, particularly when it came to innovation. “If you cannot articulate in a simplistic form your real purpose and intention,” he had said, “you will have difficulties developing something meaningful and efficient.

3 | The more daring the target, the higher people rise.

I needed to get everyone’s mind to a place where the dream seemed so impossible that it was exciting to pursue. I deliberately overshot. For more than a decade now, I’d watched teams rise to the expectations set for them. The more daring the target, the higher people rose. Big numbers got people’s attention and heightened their belief in their ability to achieve something deemed impossible.

4 | Winning is not individual success, it is the team’s triumph.

“The only thing I need you to do tonight is stop that kid Chase,” Dad explained. I was in fifth grade, and this kid Chase was the top scorer in the Catholic Youth Organization (CYO) league, plus a good six inches taller than me—just huge. “If he doesn’t score a single point, we win the game. Better yet, if he scores fewer than ten, we win the game.

But if you try to outscore him, Bill, we will lose. So your mission tonight is to sacrifice your own scoring. Just make sure Chase doesn’t make any baskets.” I didn’t argue. My dad inherited his fierce will to win from his father, pro basketball player and Hall of Famer Bobby McDermott.

5 | Teams, not stars, win games.

Dad taught me that winning required knowing my opponents’ strengths and weaknesses. “It’s not about you,” he said, “it’s about understanding them.” Beating someone like Chase was less about exercising my skills than about shutting down his skills. During that final game, I put my ego on hold and followed my dad’s advice. In the end, Chase and I scored only four points each, and my team took home the trophy.

My father’s second obsession was teamwork. He loved to win, yes, but he also understood that teams, not star players, won games. “Winning is not about how many points one player scores, but about the team winning.” This was my father’s mantra, and why he had us practice passing the ball more than dribbling or shooting. Dad preached selflessness for the good of the group, and that none of us was as talented as all of us.

6 | Be competitive, never give up, always give it your 100%.

“My father’s greatest asset was his competitive spirit,” my dad, a carnation pinned to the lapel of his suit jacket, told a banquet room full of our family members and basketball luminaries. “Fans, players, coaches, teammates, and opponents—especially the opponents—remember him well. He never gave up. He gave it one hundred percent.”

7 | Victory is not the prize, witnessing greatness is.

Behind my father’s words was a powerful sentiment: the true value of any sport was not winning, but the pleasure of watching great players in action. Living their dreams.

He just wanted great players, wherever they came from. His role was to help us play to our strengths—whether you could shoot, rebound, or defend—and get us to work together as a team.

8 | Listen more than you talk. Seek truth, find solutions.

I think I was a lot more curious and mature than most kids my age, listening more than I talked….The unfiltered exposure to my family’s circumstances taught me that hard work did not always pay off. I also understood that anything earned or given could be taken away: a house, a job, a brother. I developed a bias for truth, especially news no one wanted to hear, because the more I knew, the more quickly I could find a solution instead of dwelling on a problem.

9 | Know your customers, your competitors, yourself.

I was David amid Goliaths. What, I thought, did I have that the Goliaths did not? What could my little deli give people that 7-Eleven and Finast could not? I thought back to how I delivered those newspapers, and I asked myself a simple but critical question: Who are my customers? What did they want other than cheap milk and choices, which my competitors offered? Where could my store add unique value?

Similar to basketball, winning at business was not going to be about me, it was going to be about them. Everything I did had to strengthen my customers’ ties with the deli so that they kept coming back and spending money. If my interests were aligned with their desires, we’d both win. To do things differently, I had to see things differently. Once I knew my customers, what they wanted, and what I was good at, I focused on it relentlessly.

10 | Be interested than to be interesting.

From day one, I knew that sales was about people, not just products. A lot of other salespeople either didn’t realize that, or they didn’t care. I would walk into an office and try to figure out people’s moods, their needs, their desires. Did I have my own agenda? Absolutely. But I had an interest in others’ agendas, too. I wanted to know what mattered to someone standing in front of me; once I connected with people on a more personal level, anything became possible. Over and over, in cold call after cold call, I tried to sense what mattered to people—and do something about it.

11 | Sell value, not products.

Many of my work habits had not changed much over the years. I was as hungry and as hardworking as ever. I still stressed the importance of selling value versus products, I still liked to be in the field, and I monitored SAP’s sales pipelines daily, although now I did so from my iPad.

12 | To get what you want, give others what they want.

To get what I want, I have to give others what they want: performance. Unless I consistently meet and exceed goals and deliver on promises, no one owes me a thing. Passion is important, I know. Passion propels me forward during tough sales days and gives me the courage to take risks. Passion drove me to Stamford. But even if I want something more, I will never get what I want unless I have results to show for all my effort.

13 | Underselling your product and you undersell yourself.

“Undersell your product, and you undersell yourself,” I chant. “Discounting is the easy way out. The loser’s escape hatch.” I do not believe salespeople should lean on the crutch of discounts. Doing so chips away at the trust between a rep and a customer, as well as a salesperson’s top line.

But if salespeople quoted the high price first and then reduced it, the reduction cut revenue for Xerox as well as the salesperson’s commission. Instead of discounting, I believed in selling products for what they were worth. That meant full price.

14 | Always be highly customer-centric.

Customer-centricity tied everything together. As I told Info-World magazine in spring 2003, “Everyone in this company, from executives down to the product line managers and their staff, are spending as much time with customers as they can. We are a totally customer-focused organization.” Who, exactly, are our customers? Who is our base? What do these customers want?

15 | Right by customers, right by business.

The customer was our most important responsibility. If the customer had a problem, we had to fix it—no matter what. Everything revolved around the customer’s needs. Drop anything internal for the external customer. If it’s right for the customer, just do it.

16 | Customers decide your future, not you.

“In the long run, our customers are going to determine whether we have a job or whether we do not. Their attitude toward us is going to be the factor determining our success.” - Xerox founder Joe Wilson

17 | Your success mirrors your customers’ success.

Let’s talk about success. We are successful when our customers are successful. That is it! We have to make our customers successful in the marketplaces as they compete. We must focus all of our energy and our passion on our customers. (1) Accountability. Don’t pass the buck. (2) Professionalism. Professionals are well prepared. They are always on their game. (3) Teamwork. Everything in life that really matters happens because a team of people decides it should. (4) Passion. Passion is that differentiator between mediocrity, goodness, and greatness. Passion is when you will do whatever it takes to step up to the bar and deliver.

18 | Deals are sealed with people, not paper. Trust is the glue.

All of my deals were first sealed with people, not paper. Trust was the glue. Most of the leaders whose companies SAP wanted to acquire were not ready to sell. As I spoke with them, I listened and moved with each company’s rhythms. And like a courteous dancer, I was careful not to step on any toes with SAP’s own intentions. I could be persuasive and persistent, but I also wanted leaders of any company we bought to come to their own decisions.

19 | Rituals create consistency amid chaos.

Throughout my career, as I observed successful people, I recognized that they shared a respect for the fundamentals of play, each practicing behaviors that were the foundation for their recurring successes. The actual behaviors were different for everyone. But like any ritual, they provided consistency, especially during chaos. These “repeatable methodologies,” as I called them, focused people. Improvisation was required, but instead of reacting emotionally, people acted wisely. Process trumped panic.

20 | Life’s value: heart, will, and honor, not wealth.

My dream was not about being rich, but about high achievement. It was about significance. For a young professional who grew up with very little money, the stuff money could buy was an easy way to measure progress. Ultimately, however, I knew that my life’s value would never be measured by things acquired, but by heart, by will, and by honor. That’s why I had my limits as to how far I was willing to go for a win.

21 | Better, bored, or broke, choose better.

The sentiment President Clinton expressed at the end of one of the board’s meetings. He said there were three things that we, as Americans, can choose to do with our lives: we can be better, we can be bored, or we can be broke. Welfare to Work, he stressed, was all about getting better. Better. What an uncluttered, modest word.

It gripped me. More and more, I was seeing my work not as a series of accomplishments but as a parade of moments led by a desire for my teams, my districts, my divisions—as well as myself—to be better. As much as I loved celebrating success, the joy of a goal achieved was usually short-lived. I was never done.

22 | Winning is the process, not the destination,

As a young salesman and executive at Xerox, winning was about being “the best,” which meant selling more than anyone else. All worthy goals, but in and of themselves, high scores and high sales did not encompass what it meant to win. Experience, exposure, and maturity—as well as a Greek poem—were revealing a truth that I’d probably always known: winning was not about a specific end but about how an end was met, moment after moment. Winning was the process, not the destination. A journey of striving to be better—to be kinder, more compassionate, hungrier, more humble, more audacious, more inspiring, more rigorous—that was what turned me on, what inspired me. The quest was the best.

Every quarter, I was reminded, and I reminded others, that winning was a process, not a destination. Victory, a state of mind. SAP always had to be looking for new ideas, adapting, winning, and, the next day, looking again.

23 | Leaders have to architect dreams into reality.

A leader’s role, however, is not just to dream but to architect dreams into reality. After all the envisioning and motivational talk, leaders have to plant their feet on the ground and get to work, executing with precision. If dreaming requires optimism, audacity, and empathy, bringing dreams to life is a more concrete endeavor, demanding hard work, discipline, teamwork, communication, and courage.

24 | Commit completely. Own your future.

“You must be proud of whatever organization you choose to work for,” I offer, “then pour yourself into it completely, and do not let anyone else but you shape your future.” She makes fantastic eye contact, and I return her resolute gaze. “I can tell from your determination that you will be what you aspire to be. I have no doubt.”

25 | Your dream is your superpower. Stay authentic.

My intent was to connect with you on an emotional level through authentic stories. My humble hope is that my book furthered the pursuit of your own winner’s dream. Why? Because your winner’s dream is the essence of who you are. It is your power; it is your strength. Your winner’s dream represents your hunger, your inner magic, your capacity for empathy and for execution.

The purity of your winner’s dream is what emboldens you to triumph over thunderbolts and be a crusader on behalf of yourself and those around you. So imagine it, be ever loyal to it, and be forever inspired by it. Ultimately, your winner’s dream is your journey as you strive to be true to yourself and create a life of authenticity.

PS: We read this book as part of the research for our recent investment memo on ServiceNow (NYSE: NOW) to further deepen our understanding of Bill McDermott’s psyche, to understand his childhood, what drives him from the within, and why he has been able to repeat the successful sales from his newspaper delivery days, to the delicatessen, to Xerox, to SAP, and now to ServiceNow, and most importantly, if he can keep repeating it. We highly enjoyed and recommend this book.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

17 Sept 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

.

Essence.

All the work that we do, no matter how intricate, holds an underlying essence. It is like a core identity or fundamental structure, like a skeleton supporting flesh that gives it its “is-ness”.

A child draws a picture of a house with a window, a roof, and a door. If you take away the window and look at the picture, it’s still a house. If you take away the door, it is still a house. If you remove the roof and outer walls, and leave only the window and door, it is no longer clear whether it is still a house.

In the same way, each piece of art has a unique, life-giving feature that makes it what it is. It might be the theme, the organizing principle, the artist’s point of view, the quality of the performance, the materials, the mood conveyed, or a combination of elements. Any of these can play a role in forming the essence.

If a sculptor makes a work out of stone or out of clay, the experience of that work is very different. Yet a work of stone, and one of clay, can have the same essence.

Yet a work’s essence may also change, from the time you start until the time you finish. As you refine the work, add elements, and rearrange pieces, a new, distinct essence may emerge.

Sometimes, you may not yet know the essence when you are engaged in the work. You are merely experimenting and playing. When you end up with something you like, you might come to realise what the essence is.

Distilling a work to get it as close to its essence as possible is a valuable and informative practice. Refine it to the point where it is stripped bare, in its least decorative form yet still intact, with nothing extra.

Less is generally more. Find the simplest, most elegant way to put a point across, with the least amount of information.

Every block of stone has a statue inside it. It is the task of the sculptor to discover it. Sculpting is not about creating something from nothing, but about removing the unnecessary to reveal the purest form within.

True craftsmanship follows this same principle. The handmade, the unique, the best. These emerge not from mechanical production but from patient refinement. Factories churn out quantity, artisans pursue essence. Each piece builds upon the last, not through automation, but through a continuous and more profound understanding of what matters most.

In investing, we must consider everything: management, culture, strategy, execution—the whole reality of what a company is and how it creates value. We distill this down to its essence, chipping away the excess until only the core thesis remains: why will this business endure and grow?

“Perfection is finally obtained not when there is no longer anything to add, but when there’s no longer anything to take away.” —Antoine de Saint-Exupéry

“It’s simple. I just remove everything that is not David. The sculpture is already complete within the marble block, before I start my work. It is already there, I just have to chisel away the superfluous material.

Every block of stone has a statue inside it, and it is the task of the sculptor to discover it. I saw the angel in the marble, and I carved until I set him free.” ― Michelangelo

This piece draws heavy inspiration and adaptation from Rick Rubin’s insights on “Essence” from his book, “The Creative Act: A Way of Being”, which we highly recommend.

We practice what we preach. Take our recent Vision Capital Fund memos on Netflix, ServiceNow, and Duolingo (pass). Each distills hours of research into three concise pages, accompanied by essential charts and core data, nothing more. Handwritten and painstakingly crafted, each memo builds on the last, continuously refining our understanding of what matters most.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

13 Sept 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

The Unfurling Path

As my feet found the familiar rhythm of the running loop, something deeper began to unfold. It is in the steady whisper of my breath, the earth yielding beneath each stride, that the world reveals not just miles, but timeless truths.

These profound insights came not from introspection alone, but from the simple act of observing every runner around me, watching their diverse journeys unfold, and seeing in them a living parable mirroring the grand, endless loop of existence itself.

Directions of the Human Current

Everyone runs in different directions. Some stride beside you, temporary companions in the shared rhythm of breath and footfall, a fleeting synchronicity before their route diverges from yours. Others approach from the opposite direction, a brief nod of recognition before disappearing behind you, each pursuing their own horizon.

Solitude and Collective Rhythm

Everyone runs, either as solitary individuals or in a collective group. Observe closer: some chase a solitary wind, their stride a testament to fierce independence, while others move in a harmonious surge, a temporary tribe bound by a common pulse. Both are true. Both are vital.

The Dance of Varying Speeds

Everyone runs at different speeds. The swift will always pass you by, their urgency a reminder that speed is not everything. The steady will fall behind, teaching you that endurance matters more than pace. The path is a fluid dance of overtaking and being overtaken, a constant recalibration of our own cadence.

The Spectrum of Effort

Everyone runs at different intensities. Effort is a spectrum of the soul. The fervent push, a testament to will; the quiet pause, a nod to resilience. Some choose to lean into the burn, others embrace a leisurely pace. Life asks for both the sprint and the sacred stillness, knowing that sometimes, wisdom is disguised as weakness, and exhaustion can be mistaken for progress.

Distances That Define

Everyone runs different distances. Distance reveals character. The sprinter chooses intensity over duration. The marathoner understands that the longest journeys require the gentlest pace. Some conclude their run when they've had enough; others discover they're capable of more than they ever imagined, their path extending beyond the perceived finish line.

The Sacred Hour of Beginning

Everyone starts at different times. Some begin running in the early hours, chasing solitude and possibility. Others wait until the sun is out, embracing the heat and crowd. Each finds their sacred hour, their moment when the world aligns with their inner rhythm.

The Wisdom of Age

Everyone is at a different age. Age is just another variable in the equation of motion. The young run with abandon, the experienced run with wisdom. Both have something to teach about the art of moving forward.

The Perpetual Flow

Everyone comes and goes. Runners come and go, like seasons on the path, a perpetual flow that defines the very essence of the loop. Existing strides falter, some pause to rest, while others depart to find new terrain. Yet, the path is never truly empty. New faces emerge, fresh energy fills the space, their eager strides taking up the timeless rhythm. This ever-evolving dynamic is the grand relay of existence that never truly ceases. It merely passes the baton from one striving soul to the next, a testament to the enduring spirit of forward motion.

The Individual Marathon

Everyone is running their race, at their own pace, on their route, from where they are, towards where they want to be. In this grand, individual marathon, each soul charts its course, finds its cadence, departing from their present towards their desired future. The path is deeply personal, yet universally shared. Run your race. Own your pace. Embrace the journey. The true art of living lies in knowing when to follow your internal compass and when to lend your breath to the collective song.

The Shared Human Condition

Everyone runs the same shared path, but the journey is different for each. In the end, we are all running toward something: health, peace, escape, discovery, or simply the next breath. We are all runners, united by the human condition of forward motion. The path we traverse is universally shared, a testament to our common ground, yet the journey itself remains uniquely, profoundly yours. Just keep running.

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The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

26 July 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual and quarterly letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

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Last month, I had the opportunity to share our Vision Investing philosophy at MOI Global's 2025 Zurich Project. I wanted to share these prepared remarks and presentation slides with you as they capture my personal journey and our approach at Vision Capital Fund. I hope you find value in these shared insights.

I stood at a crossroads at age 30, over a decade ago. After years of studying economics and finance in Singapore and working 70-hour weeks at two major US investment banks (Citi and JP Morgan), I faced a sobering reality. The 2008 global financial crisis marked the end of the banking industry's golden era.

Ironically, despite my finance career, I had never read an investing book nor purchased a single stock or ETF. Except for buying Citi shares at over $10 during my first week working there in late 2008, only to watch the stock price collapse by 80% to below $2. That hardly qualifies as investing.

I knew nothing of Benjamin Graham, Warren Buffett, or Charlie Munger. I was not a child prodigy, nor did I have parents who taught me business. My parents divorced during my early teenage years after my father accumulated massive gambling debts. My younger brother and I grew up in public housing where loan sharks regularly plastered our corridors with threats and red paint. My mother was trying to make ends meet to raise my brother and me.

Recovery from a near-death accident pivots to investing

Life changed drastically on Christmas Eve twelve years ago. After too many drinks at a beach club, I foolishly attempted a somersault into a shallow swimming pool. My head hit the bottom of the pool, and I instantly knew I had broken my neck. By some miracle, I avoided near death and paralysis.

While my broken C1 vertebra has partially fused, it still remains broken to this very day. After my recovery, this life-changing experience became the pivot point in my life. I needed to do something meaningful with my life. I decided to choose investing as my lifelong pursuit.

The growth of a business drives long-term returns

With zero investing knowledge beyond reading financial statements and understanding basic concepts, I enrolled in a three-day Buffett-influenced Value Investing course to accelerate my learning. The principles made immediate sense: buy good businesses at cheap prices with a high margin of safety. We were trying to buy $1 coins for $ 0.60 to $0.70. While value seemed critical, something still felt incomplete.

I returned to first principles and asked myself: What drives long-term rising stock prices? The answer was clear: As you can see in the leftmost chart, where revenues, profits, and free cash flows go, the stock price eventually follows.

On the right-most chart, while the change in valuation multiples primarily drives short-term returns (i.e., 46% in any given year), long-term stock returns largely come from the growth of revenues, profits, and FCF (~85-95% over 5-10 years).

Power laws drive long-term global stock market returns

Power laws exist not just in venture capital but also in public equities. Here is a startling fact: researcher Hendrik Bessembinder found that from 1990 to 2020, just 1% of stocks globally accounted for 90% of total net returns. Think about that: 99% of companies added little to no value. The implications were clear. Success in investing is not about spreading bets evenly. It is about finding, holding, and adding to that exceptional 1%. We must fish in a tiny pond, not the vast ocean.

Knowing what we tend to seek

We aimed to identify the qualitative traits of exceptional businesses to get closer to the 1% of winners. We discovered that companies with these positive characteristics tend to outperform consistently. Today, these form our evaluation framework, and we monitor a dynamic list of less than 80 companies globally that fit our criteria.

We seek businesses riding powerful tailwinds, emerging as category leaders, disrupting incumbents, and competing in industries that tend toward monopolies, duopolies, or oligopolies, where it often becomes a case of winners taking most markets, allowing them to grow faster for longer and make more profits for longer.

Quality becomes a critical trait that we rigorously assess: the market opportunity and how a company innovates to win customer share, how efficiently it converts investments into profits, whether it can deploy more capital profitably as it grows, and whether its management teams think like owners. These quality markers separate sustainable compounders from fleeting growth stories.

Knowing what we tend to avoid

Inverting all, if not most, of the traits in the previous slide, gets us to the list of traits that we prefer to avoid. They are usually very niche businesses in small markets, typically in the slower-maturing or declining phase of their S-curve, suffering much more from headwinds than riding tailwinds.

They typically have weak competitive advantages, face intense competition, and exhibit poor unit economics and profitability, as well as limited reinvestment opportunities. They are usually highly leveraged, with high net debt, often run by weak management, have poor Glassdoor ratings, and have unhappy, frustrated employees.

Generating asymmetry, alpha, and outperformance

When these winners win, they win extraordinarily. These are the multi-baggers —companies that increase in value by 10x, 20x, 50x, or even 100x. These are not investments where we aim to capture a modest 20-40% return and then move on to the next opportunity, repeating the process. With such compounders, one must resist the temptation to trim winners to fund losers. Patience becomes a competitive advantage. We have learned to let our winners run high.

The risk-reward asymmetry is compelling. When buying a stock, the downside is capped at 100%, but the upside is theoretically unlimited, with potential returns of 10x, 20x, or 50x. Each position functions like a long call option, and a portfolio of stocks effectively resembles a giant long call option payoff.

Asymmetry is the holy grail in investing, where over a long time, in heads, you don’t lose a lot, and in tails, you win increasingly more time.

Diversification as a process, concentration as an outcome

In this approach, a few winners will drive the majority of returns, with their gains vastly outweighing losses from the losers many times over. Batting average, which is how often we win, matters, but slugging percentage, which is the ratio of gains from winners relative to the losses from the losers, matters far more. While diversification is the process, concentration becomes the outcome as winners earn the right to grow to become outsized allocations over time.

Swinging the probabilities and payoffs in your favor

Great investing is about swinging the probabilities and payoffs in our favor. First, we want to lose less often and try to avoid most of the losers, and we know what to avoid.

Second, we want to minimize losses so that the losses incurred by others do not harm us. We avoid anything that results in unlimited downside, from short-selling, leverage, derivatives, or hedging. We never want to be playing a game of Russian Roulette with a bullet in the chamber, constantly spinning the barrel and firing, and be permanently wiped out, no matter how attractive the winning payoff might be.

Third, we aim to win more often and improve our batting average to identify winners. We know what to seek, yet we don’t want the batting average to be too high, which means we are playing it too safe. We want to be long-term investors to increase our probability of not losing rather than a day trader playing a game of coin toss.

Lastly, we want to win big and much more. The compounding of gains from multi-baggers over long periods will result in highly asymmetric returns relative to losses, leading to growing concentration over time and ultimately driving eventual long-term outperformance.

Focusing on the long-term drivers of total stock returns

There are four main long-term drivers of stock market returns: (1) growth of free cash flows, (2) change in valuation multiples (if there is expansion or contraction, usually we assume contraction), (3) free cash flow yields, which stems from the price paid and lastly (4) any dilution that comes from stock-based compensation.

Our portfolio has grown at a weighted annual rate of ~24%, driven by faster revenue growth rates. We believe our holdings have high growth endurance and can continue to grow at a 15-20%+ CAGR for the next 3-5+ years. The weighted average free cash flow (FCF) margins are ~25%, which reflects the high quality of the holdings.

All of the companies have high operating leverage, and we expect FCF margins to continue expanding. This implies that FCF would likely grow faster than 20-25%+ on a blended basis.

FCF yields are typically around 2-3%+, which means they are not cheap relative to current free cash flows. But suppose they can continue to grow, and we can underwrite their growth with a high degree of certainty, even assuming a modest valuation multiple and considering potential contractions and dilution. In that case, we believe that over the long term, the portfolio would have a high likelihood of returning 15-25%+ on a gross basis, primarily driven by the growth of our underlying businesses.

Different Investing Games: Knowing Which Ones to Play

There are many games in investing. Knowing which one we are playing is crucial. We are trying to buy $1 coins with a high probability of becoming $10. We are comfortable paying seemingly "expensive" prices of $1.50 when identifying companies capable of sustaining highly profitable growth rates over extended periods. What is expensive to others on a current basis can be cheap to us on a forward basis.

Bringing vision into everything we do

As I began studying successful investors, one quote from David Gardner of The Motley Fool resonated with me differently. He said, "Make your portfolio reflect your best vision for our future.” Suddenly, investing was not just about the numbers. It was about backing the future I wanted to live in.

That was when everything clicked. After my accident, I gained a new perspective on the brevity of life. Why spend it chasing returns in businesses that made the world worse? This realization gave birth to Vision Investing and Vision Capital, where I invested my capital for over seven years, driving investment towards its highest expression of purpose and impact. And now, with Vision Capital Fund, which we just started eight months ago, we manage external capital for individuals and families.

Seeking out top dogs in long-term secular trends

We employ the concept of “Vision” in our investment philosophy in two ways. While we are bottom-up stock pickers, we are also top-down aware of broader secular trends. We continually focus on identifying top dogs and first movers riding long-term tailwinds in large, important, and emerging industries. We are constantly trying to understand what the big picture would look like. We think big, not small. We want to skate to where the puck is going, not where it has been. After all, investing is all about the future, not the past.

Our holdings reveal our philosophy, convictions, and vision

We are conscious capitalists. We want to invest in companies that, if they prosper, will make us feel great about the future. Our investments must align with our values and reflect our best vision for our future, changing and shaping the world for the better. We are willing to reject opportunities that do not align with our vision and values, regardless of how lucrative they may be. We want to do well and do good in the long term.

Looking back at that Christmas Eve twelve years ago, I see it as a blessing in disguise. That near-death experience did not just save my life. It redirected it toward something meaningful. Today, when we evaluate investments, we ask not just, "Will this make money?” but “If this company succeeds, will the world be better?” Vision Investing is not just our philosophy; it's our way of life. It is our way of generating strong returns in parallel and deploying capital to create the future we want to live in.

From value 1.0 to value 2.0 to value 3.0, with vision

Investing transcends traditional value, growth, or quality frameworks. Value matters. Growth matters. “Vision” increasingly complements all these in generating sustainable, exceptional long-term returns, identifying companies that transform industries and improve lives. That’s what we want to keep doing for a long time. We hope more investors will incorporate their unique variant of “Vision” in their investment framework and philosophy.

Thank you to the MOI Team and John Mihaljevic

Thank you to John Mihaljevic for organizing the fantastic and intimate MOI Zurich Project, featuring many high-quality presentations from the participants. It is an event that I thoroughly enjoy and highly recommend. It has allowed me to form many new friendships and strengthen existing ones. I look forward to returning.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

5 July 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe that individual investors can outperform the market over the long term. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

Netflix’s "Race to the Summit" documentary chronicled the intense, death-defying rivalry between alpine speed climbers Ueli Steck and Dani Arnold as they sought to set speed records on three iconic Swiss Alps’ great North Faces: the Eiger, Grandes Jorasses, and Matterhorn. It was a masterclass in human ambition.

It also got me thinking: what makes the "North Face" so iconic, not just in climbing lore, but even as the name for a global brand? And beyond the quest for speed, what truly defines a climber's purpose in these extreme environments?

The North Face: A Name Steeped in Challenge

The term 'The North Face' is not just the name of an iconic outdoor brand. It immediately conjures images of harsh, unforgiving terrain for anyone in the Northern Hemisphere. And there's a very good reason for that. Unlike south-facing slopes, the North Face of a mountain receives significantly less direct sunlight throughout the day. This fundamental difference leads to a cascade of challenging conditions for climbers:

• Persistent Ice and Snow: With minimal sun exposure, snow and ice remain frozen solid for extended periods, creating treacherous sections of verglas, hard-packed snow, and unstable seracs. This requires highly specialized techniques and significantly contributes to the objective hazards.

• Colder Temperatures: Consistently less sun on north-facing slopes keeps them perpetually colder than other aspects, significantly increasing the risk of frostbite and hypothermia, and complicating delicate tasks with gloved hands.

• Unique Rock Quality: The absence of the same freeze-thaw cycles seen on sunnier aspects can sometimes result in more brittle, less weathered rock, presenting different technical climbing challenges.

The Race to the Summit: Beyond the Clock

While understanding the physical challenges of the North Face is crucial, "Race to the Summit" pushed me to consider the deeper human elements at play. The documentary wasn't just about incredible physical feats; it was a visceral exploration of rivalry, ambition, and the relentless pursuit of human limits.

Ueli Steck and Dani Arnold's battle to shave minutes off speed records on peaks like the Eiger and the Matterhorn was mesmerizing. Their drive was absolute, fueled by an almost primal urge to be the fastest.

But watching it, a fundamental question lingered: If records are always destined to be broken, if there's always a "new mountain to summit and faster attempts to be made," then what truly defines one's purpose?

This question, “when does one truly realize their defining purpose?”, resonated deeply with our work in long-term investing and life.

The film powerfully illustrates several key takeaways:

• The All-Consuming Nature of Rivalry: The intense competition between Ueli Steck and Dani Arnold became a driving force, pushing them to extremes. While it spurred incredible achievements, it highlighted how external validation and the desire to surpass one another can dominate a climber's focus. While the driver to outperform competitors can be a powerful motivator and push individuals to extraordinary lengths, it also highlights the risk of becoming so consumed by the “race” that one loses sight of fundamental principles or takes on undue risk. Ultimately, to win, one must finish first and be alive to do so. In investing, this might manifest as chasing fads or making impulsive decisions solely to beat the market in the short term, rather than adhering to a sound, long-term strategy.

• The Ephemeral Nature of Records vs. Enduring Purpose: Speed records are temporary by their very definition. This begs the question of what lasts. Is the purpose solely in the fleeting moment of being "the fastest," or is there a deeper, more enduring meaning to be found? Similarly, in the financial world, the purpose is not just about hitting the highest immediate returns, but about what is truly sustainable and enduring over the long term. The true purpose lies in understanding long-term secular trends, mitigating risks, and building a resilient portfolio that can withstand market "North Faces" and deliver consistent, compounding value over time, rather than just chasing the next fleeting peak.

• The Perilous Balance of Ambition and Risk: Both climbers operated on the razor's edge, often free-soloing or with minimal protection (without ropes). The documentary starkly reminds us of the extreme dangers involved and the fine line between pushing limits and fatal consequences. For Ueli Steck, whose life tragically ended pursuing another record in the Himalayas, this question of balancing ambition with self-preservation becomes particularly poignant. This mirrors the constant risk-reward in investing. Every investment decision carries inherent risk. Our role involves not only identifying opportunities but also critically understanding and effectively managing their downsides. It is about having the conviction to pursue challenging "summits" but also the discipline to know when to retreat, when conditions are too hazardous, or when a "North Face" requires a more conservative approach. The tragedy of Ueli Steck serves as a stark reminder that even the most skilled can misjudge risk, underscoring the critical importance of robust risk management frameworks in our work.

• The Search for True Meaning (Beyond the Numbers): Perhaps the film's most profound question is: When does realizing one's true purpose truly emerge? For some, it might be the sheer joy of scaling the mountains, the connection with nature, or overcoming an internal battle. For others, it might be the recognition and legacy. For us, it is delivering outstanding long-term investment returns by investing in exceptional companies that best reflect our vision for our future, changing and shaping the world for the better. This pursuit offers a powerful sense of purpose beyond mere numbers. It is also about the intellectual challenge, continuous learning, and the satisfaction of navigating complex landscapes to achieve meaningful outcomes for our partners, stakeholders, and society, rather than just optimizing a single metric.

Ultimately, "Race to the Summit" is not just about scaling peaks. It is about the internal landscape of those who do. It is a compelling look at the human spirit's boundless ambition, the allure of the extreme, and the perpetual quest to find meaning, whether on the most formidable North Face or within oneself.

For us, these lessons extend directly to the challenging yet immensely rewarding "North Faces" we navigate every day in our work, constantly striving for excellence while never losing sight of our true purpose.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

14 Jun 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe the individual investor can beat the market over the long run. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

Azulejo tiles are a defining symbol of Portuguese art and architecture, but their history is a story of global connections, technological innovation, evolution, and cultural exchange.

Colours in early ceramics from metal oxides

Early ceramics typically consist of a few colours achieved using different metal oxides: Persian cobalt for blue, copper for green, manganese oxide for purple and dark brown, iron oxide for brown/red/yellow, and Naples Yellow (synthetic lead antimonate) for yellow and orange shades.

The iconic blue from the highly sought-after Persian Blue

The iconic blue and white colour scheme that defines Portuguese azulejos originates in the East. Chinese artisans began using Persian Cobalt Blue pigment, which was highly sought after and widely traded along the Silk Road routes, supplying the Islamic world and China.

Adoption of blue was still early and experimental due to scarcity

While proto-porcelain and early blue and white ceramics existed during the Tang dynasty (7th–10th century), it was primarily via low-fired ceramics, pottery/stoneware (陶), and it was scarce and experimental compared to later periods due to the high costs and scarcity of securing Persian cobalt.

High-fired porcelain only came with the refinement of materials first

High-fired porcelain (瓷) only reached new heights during the Song Dynasty (10th to 13th century) with increased technical refinement of the use of kaolin (white clay) and porcelain stone (petuntse, 白墩子). Kaolin provided whiteness and strength, while porcelain stone contributed to translucency and vitrification.

The development of advanced kilns allowed for porcelain to emerge

Developing advanced kilns capable of reaching and sustaining temperatures above 1,200°C (2,192°F) was crucial. These allowed the raw materials to vitrify, producing the hard, white, and translucent qualities that define true porcelain.

Driving the higher adoption of Persian cobalt blue

True blue and white porcelain only became prominent from the Yuan dynasty (13th-14th century). Chinese potters began importing high-quality cobalt blue pigment from Persia and perfecting the underglaze technique.

Chinese blue and white porcelain reached its peak, driving demand amongst the nobles and the wealthy

Only during the Ming dynasty (14th to 17th century), especially in the early 15th century, did blue and white porcelain production reach its artistic and technical peak in China, which became iconic and internationally renowned. These striking blue and white porcelains soon became highly prized in Europe, especially among the nobility and wealthy, and were exported via the Silk Road routes.

Increased availability of Cobalt Blue from European sources lowered prices, drove larger adoption, beyond porcelain to azulejos

From the 16th century onward, cobalt sources were also found in Europe. They were the Erzgebirge (Ore Mountains) region of Saxony (now in eastern Germany and the Czech Republic), Norway, and Sweden. These European sources increased availability and lowered cobalt prices. They became significant for the larger adoption of blue pigments in producing glass, ceramics, and azulejos in the 17th and 18th centuries.

Azulejos, first introduced to Portugal by the Moors, started with geometric patterns

Azulejo tiles were introduced to Portugal through Moorish influence (8th-13th century), with the earliest forms appearing in the 13th-14th century. They were heavily inspired by Islamic and Moorish art, which emphasized intricate geometric patterns, interlocking shapes, and arabesques.

The word "azulejo" itself comes from the Arabic "al-zillīj" or "al-zuleique," meaning "small polished stone," reflecting the origin of the craft in the Islamic world.

Royalty adoption sparks popularity amongst the elite

In the 16th century, King Manuel I of Portugal (1495-1521) fell in love with the tilework he saw in Spain. He began importing azulejos for the National Palace of Sintra, sparking their popularity among Portuguese royalty and the elite.

Portugal’s golden age drove incredible wealth creation

The late 15th to 16th century was a golden age for Portugal. It was the age of discoveries and was a transformative era, marked by significant achievements in exploration, empire-building, culture, and governance. Vasco da Gama’s voyage discovered the maritime route to India in 1498, securing Portugal’s dominance over the lucrative spice trade. Pedro Álvares Cabral’s expedition “discovered” Brazil in 1500, laying the foundation for Portuguese colonization of South America, bringing gold.

The Portuguese were the first explorers, before the Dutch and British

Portuguese outposts and trade networks were established in Africa, India, the Persian Gulf, Southeast Asia, and Brazil. Portugal’s early leadership (late 15th to 16th century) in navigation, exploration, and global trade turned it into a leading international maritime and commercial power, profoundly shaping world history before it was eventually overtaken by the Dutch (17th century) and then the British (18th to 19th century).

Azulejos evolving to more colours, complex designs, and narrative scenes

After the 15th century, Portuguese tile-making absorbed influences from Spain (ruled 1580-1640), particularly from Seville, where new glazing techniques like tin-glazing allowed for brighter whites and vibrant blues. The initial focus on geometric and abstract patterns gradually expanded to include more complex designs, narrative scenes, and additional colours.

Adoption of a blue and white palette inspired by the Chinese

Inspired by Chinese porcelain, the iconic blue-and-white colour palette became dominant after the 1620s. This shift was driven by the popularity of imported Chinese porcelain and the desire to replicate its aesthetic designs.

The technological improvement of Dutch Delftware sparked commercialisation and adoption

From the late 17th century onward (1640-1740), the Dutch, particularly in Delft, lacking kaolin clay, developed a local alternative using Dutch clay (yellow or red when fired) dipped into a bath of opaque white tin glaze to cover it completely. They began producing tin-glazed earthenware (Delftware) in blue and white that resembled porcelain in appearance. The hallmark was that it provided a smooth, opaque surface ideal for painted decorations, which was then covered with transparent glaze.

Delftware became renowned across Europe for its quality and artistry. Its blue-and-white tiles became a symbol of prestige and became fashionable among European elites. They were also exported throughout Europe.

Influencing Portuguese adoption and the shift towards their style

Portuguese nobility and clergy were so enamored with Dutch Delftware that they imported considerable quantities to decorate churches, palaces, and aristocratic homes. Portuguese artisans, already familiar with blue from earlier influences, embraced this palette, which became iconic for azulejos in the 18th century.

Their narrative scenes, floral motifs, and landscape designs inspired Portuguese tile makers to move beyond geometric and Moorish patterns toward more figurative, story-telling compositions.

Temporary import bans on Dutch Delftware led to the rise of the domestic Portuguese Azulejos industry

The popularity of Dutch tiles led to a temporary ban on imports in the late 17th century to protect and encourage the local domestic Portuguese tile industry. This spurred Portuguese artisans to adopt and adapt Dutch techniques. This led to a distinctively Portuguese style that retained the blue-and-white palette but developed its large-scale mural compositions and themes.

In summary:

What began as a simple curiosity about Portugal's blue and white azulejo tiles led me on a fascinating journey through centuries of history, culture, and innovation. I discovered that these iconic tiles are not just beautiful decorations, but the result of a vibrant tapestry of global influences-from Persian cobalt and Chinese porcelain to Moorish geometry, Spanish craftsmanship, and Dutch artistry.

The story of azulejos is a testament to humanity’s enduring spirit of creativity, exchange, and adaptation. In every tile, we see Portugal’s unique identity and the echoes of a world connected by trade, discovery, and artistic inspiration, where one can find numerous parallels even in today’s world.

The next time you pass a tiled wall in Lisbon or Porto, you’ll be looking at centuries of global history skillfully painted in blue and white.

The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.

20 May 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe the individual investor can beat the market over the long run. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

Join our email list for more investing insights. Our emails tend to be ad hoc and infrequent, as we aim to write timeless, not timely, content.

Subscribe now

This article builds on my previous article, "Connecting the Dots: Parallels Between Reiki, Investing, and Life," which I wrote after completing my Reiki (霊気) Level 1 training. That initial exploration sparked such profound curiosity that I immediately pursued Reiki Level 2.

In Reiki Level 1, we began our journey by being attuned to the universal life force, learning to channel healing energy physically to ourselves and others.

With Reiki Level 2, we advanced to using three sacred symbols to direct this universal energy with greater precision across dimensions of space (environments and geographies) and time (past, present, and future).

While the three symbols are sacred to share, the underlying seven reflections offer remarkable wisdom and resonate powerfully across all domains of existence, from personal growth to business and investing.

By sharing these reflections, I hope to illuminate your path to creating value, building wealth, and living with greater purpose and fulfillment.

1 | The Sacred Power of Pure Intent

With greater power comes profound responsibility. Our intentions must transcend our self-interest to embrace something higher, a purpose that serves beyond our individual needs. Our motives align with the universe when we are pure, genuine, kind, and loving.

The universe recognizes the authenticity of our hearts. When our intent is unburdened by ego or manipulation, the universe's energy flows through us unobstructed, channeling where healing and transformation are most needed. This clarity of purpose fundamentally transforms our relationship with the energy we direct, allowing us to become a conduit for something greater than ourselves.

Investing Parallel: The most successful investors approach markets with integrity and a clear purpose, not just seeking personal gain. When investment decisions are guided by well-researched conviction rather than greed or fear, they yield superior long-term results. Like the universe, the market often rewards those whose intentions extend beyond mere profit to creating genuine value. Companies with strong, visionary missions that serve a greater purpose tend to outperform those focused solely on quarterly earnings.

Life Parallel: In relationships and career choices, pure intent creates trust and opens doors that manipulation cannot. When we approach life's challenges with genuine intentions to learn and grow rather than prove ourselves right, we discover win-win solutions that benefit all. Our genuine authenticity has increasingly become our greatest asset.

2 | Serving the Highest Good

Reiki flows only toward what truly serves our deepest well-being. Approach this healing energy with joy and love, holding clear and pure intentions, never as a tool to manipulate specific outcomes. Remember that we are architects of our reality; our thoughts, words, and actions shape the very essence of our existence.

As we envision possibilities with genuine belief, take aligned action, and embody these truths, we amplify their power and gradually transform them into our fullest expression. The path to becoming is not through forcing or controlling but through allowing this universal energy to guide us toward our authentic purpose.

Investing in Parallel: The most sustainable investment strategies serve not only to create personal wealth but also to foster broader economic prosperity, leading to durable value creation. When capital flows to businesses that solve meaningful problems, everyone benefits. Over the decades, the best-performing companies have often improved society while generating returns. By investing in alignment with what serves the highest good—sustainability, technological innovation, and human flourishing—we participate in a positive feedback loop where financial returns and societal benefits reinforce each other.

Life Parallel: Our lives gain coherence and purpose when we make decisions based on what genuinely serves the highest good rather than immediate gratification. This principle applies to career choices, family decisions, and community involvement. By consistently asking, "Does this serve something greater than myself?" we naturally align with opportunities for meaningful contribution and fulfillment.

3 | Releasing the Bonds of Expectations

Expectations take two forms: those we place upon ourselves and those we project onto others. When we pursue perfection or cling to specific outcomes, we often create the very disappointments we fear.

Instead, invite the universe to channel energy, wisdom, clarity, determination, compassion, and love through you for the highest good. This surrender allows life to unfold more profoundly than imagination could conceive. Remember that temporary discord and conflicts may catalyze restored balance, yielding unexpected but invaluable wisdom.

Our greatest power lies not in controlling our environment or others but in mastering our responses. True freedom emerges when we acknowledge what lies beyond our influence, release expectations around it, and focus inward on the only domain where our sovereignty remains absolute.

Investing Parallel: Markets consistently humble those who believe they can predict exact outcomes, where they will be precisely wrong. The most resilient investors acknowledge uncertainty and build strategies that thrive regardless of specific market movements. By releasing attachment to particular returns in specific timeframes, we gain the emotional stability to stay invested through market volatility. We recognize that temporary market corrections often create the conditions for healthy, sustainable growth. Long-term success comes not from controlling market movements but from controlling our reactions to them.

Life Parallel: Life's greatest joys often arrive unplanned, while our most carefully crafted expectations frequently lead to disappointment. When we release rigid expectations about career trajectories, relationship milestones, or life achievements, we create space for organic growth and unexpected opportunities to emerge. By focusing on what we can control—our efforts, attitudes, and responses—rather than outcomes, we find greater peace and effectiveness in all domains.

4 | Going to Our Essence, to Our True Self

We discover our essence when we direct our energy like a sword to cut through illusions and noise. This focused clarity liberates us from the distractions of time, past regrets, present anxieties, and future fears, allowing something universal to emerge within us.

In this state of presence, we become more centered, grateful, and joyful, naturally embodying our authentic nature. Only then can others see us as we are, with our luminous strengths and human vulnerabilities laid bare, not as imperfections to hide but as integral parts of our complete selves.

Investing Parallel: The noise of financial media, market rumors, and short-term thinking creates a fog that obscures clear investment judgment. Successful investors develop the discipline to cut through this noise and focus on fundamental principles and long-term value. By connecting with their core investment philosophy—their "true self" as investors—they make decisions from a centered, conviction-driven place rather than a reactive one. This authenticity in one's investing approach becomes one's competitive advantage, allowing one to see opportunities others miss and remain steady when others panic.

Life Parallel: Modern life bombards us with distractions and social comparisons that separate us from our essence. When we intentionally cut through these illusions to reconnect with our core values and authentic desires, our decision-making improves across all areas of life. This clarity enables us to allocate our most precious resources, time, and attention to what truly matters. By embracing our strengths and vulnerabilities, we foster more genuine connections and create lives that reflect our authentic selves rather than conform to external expectations.

5 | The Revelation of Balance

True balance emerges when we recognize that equilibrium is dynamic, not static. Balance becomes not a distant shore to reach but a profound truth awaiting our recognition. The eternal dance between order and chaos reveals a single, flowing harmony when our perception clears.

In this awakened state, we no longer perceive imbalance, only the sacred rhythm where seeming contraries merge into an elegant, unbroken continuity of being. We can only gain the wisdom to embody and share it when we see balance in its complete nature across time and space.

Investing Parallel: Traditional finance theory teaches that balance is not the elimination of volatility but the strategic integration of complementary asset classes whose movements offset each other. They would rather diversify to a smooth 7% than have a volatile 12% annualized return. Markets exhibit this dynamic equilibrium, with bear and bull cycles forming not opposing states but a continuous flow of creative destruction and growth. The investor who recognizes this inherent balance gains a perspective that transforms market volatility from a source of anxiety into an expected buying opportunity rather than one of fear.

Life Parallel: A balanced life is not achieved by rigid compartmentalization or elimination of challenges. True life balance emerges from integrating seemingly opposing forces—work and rest, connection and solitude, structure and spontaneity. When we cease fighting against life's natural rhythms and instead flow with them, we discover a state of effortless equilibrium. This wisdom liberates us from the exhaustion of fighting against inevitable challenges, allowing us to recognize these necessary downturns as integral threads in life's harmonious tapestry.

6 | Transcending Temporal Bounds

When you attain clarity of mind, thought becomes purified of distortion, and the artificial divisions of past, present, and future dissolve into a unified whole. This integration allows you to transcend the ordinary constraints of time and space.

In this awakened state, you recognize that your present self emerged from all that came before, just as your future self will emerge from who you are becoming now. The continuum of existence reveals itself as one unbroken flow.

When you release attachment to specific outcomes and align with the highest good, your actions become imbued with authentic power. In this surrender, you perform your most profound work, allowing universal forces to guide you precisely where your essence belongs in the grand tapestry of being.

Investing Parallel: The most successful investors transcend the boundaries of short-term thinking to embrace a timeless perspective. While prices matter when investing in quality businesses, holding them over time is far better than trying to time the market to trade or constantly rotating them in and out. When one understands this continuity, they make decisions not based on timing the market but on participating in the ever-growing value that the company produces. Compounding, the ultimate investment force transcending time, works invisibly across decades to transform modest initial capital into generational wealth. The investor who aligns with this natural force rather than fighting it through frequent trading or market timing performs their most profound financial work.

Life Parallel: When we integrate our past experiences as valuable teachers rather than burdens and view our future as emerging organically from our present choices rather than as a distant goal to be pursued anxiously, we gain tremendous peace and power. This temporal integration allows us to make decisions from a place of wholeness rather than fragmentation. By recognizing that our lives unfold as one continuous journey rather than disconnected segments, we naturally align with our authentic path, making choices that honor both where we have been and where we are headed.

7 | The Sacred Cycle of Giving

To truly give to others, you must first nourish your being. The entirety of your existence offers ample opportunity for this essential self-care. Only when your vessel is replenished can you authentically provide sustenance to others without depletion.

The universe operates through perfect reciprocity, though its mechanisms often transcend our understanding. What we contribute to the world inevitably returns to us in recognized and unexpected forms. As we increase our offerings of goodness, so does the universe amplify its response. Begin always with the act of giving, free from expectation or demand, and watch as this generosity creates ripples that eventually return to transform your shores.

Investing Parallel: The most enduring wealth comes not from taking but from creating value that benefits others first. We prefer companies that prioritize value to all stakeholders, including customers, suppliers, employees, and shareholders. The market will reward them over time as long as they continue to do so. The market's reciprocity may not be immediate or direct, just as the universe's is not. But over time, it rewards those who contribute more than they extract. This principle explains why patient capital invested in value-creating companies consistently outperforms short-term speculation.

Life Parallel: In relationships, careers, and community involvement, those who give generously without expecting immediate return often receive the most abundant rewards over time. By first nourishing our knowledge, health, and inner resources, we cultivate the capacity for sustained giving that enriches ourselves and others. This reciprocal flow creates virtuous cycles where giving and receiving become indistinguishable parts of the same process. The most fulfilled lives embody this principle, constantly expanding their capacity to contribute value to the world while remaining open to receiving what naturally returns.

Conclusion

As we conclude this exploration of Reiki, these seven sacred truths—pure intent, serving the highest good, releasing expectations, finding our essence, recognizing balance, transcending time, and embracing reciprocity—form not separate lessons but an integrated wisdom tradition that applies universally.

The most successful investors embody these intuitively, often without recognizing their spiritual dimensions. They approach markets with clarity of purpose, focus on creating genuine value, remain unattached to short-term outcomes, cut through noise to find essential truths, embrace market cycles as natural rhythms, take the long view beyond quarterly thinking, and understand that true wealth comes from giving value first.

When we align our lives, we might discover that success in any domain, whether in healing, life, personal growth, business, or investing, flows from the same wellspring of wisdom.

The beauty of these reflections lies in their practical application. They are not abstract philosophies but living guides that, when embraced, transform how we engage with markets, with others, and with ourselves. In an increasingly fragmented and specialized world, these reflections remind us that all aspects of life are interconnected and operate under these very similar themes.

May these reflections inspire you to discover your connections between ancient wisdom and modern application, between spiritual practice and practical success, between the universal energy that flows through all things, and your unique path of contribution to our world.

Thank you to my Reiki Teacher, Svetlana Rao, who teaches Usui Reiki at The Blue Lotus, for the extraordinary Reiki Level 1 and 2 sessions.

28 April 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe the individual investor can beat the market over the long run. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

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Reiki (霊気) was rediscovered in Japan at the end of the 19th century by Mikao Usui (1865-1926). “Rei” (霊) means universal, and “Ki” (気) means life energy.

Reiki is learning to channel the universal energy that flows through all living things to promote healing and balance in oneself and others.

Reiki emerged as a holistic approach to wellness that differs significantly from Western medicine's predominant focus on treating symptoms. Instead, Reiki emphasizes energy flow, balance, and the body's innate ability to heal itself when properly aligned. As we explore these concepts, we find surprising applicability to financial markets.

As I did my Reiki Level 1 training this weekend (deeply inspired by my wife), two grand themes became apparent to me. These two themes and other sub-themes presented many parallels to investing, business, and life.

The first grand theme is recognizing that we are merely vessels who channel energy from around us through us rather than being able to control and create.

The second grand theme is that balance is not a fixed destination. Balance is a dynamic equilibrium that is continuous and interconnected. Balance has to be pursued so that it can ensue. One should not seek balance as a destination or goal but as a continuing process.

For those skeptical about connecting an ancient energy practice with modern financial principles, I invite you to consider these parallels with an open mind. The wisdom embedded in Reiki's approach to energy flows offers surprisingly practical insights for navigating today's complex market environments.

The concept of "channeling energy" in Reiki offers numerous illuminating parallels to business, investing, and life. Below is the list of 14 that were most revelatory to me.

PS: These are merely my reflections from an observer and a novice practitioner, and we would love to expound on this further as we learn through more advanced levels.

1 | Acting as a conduit, not a controller.

Reiki: Practitioners do not create energy but intuitively channel the universal energy around them to themselves and others. They remove blockages and direct the flow of energy rather than forcing outcomes.

Investing: Long-term investors do not try to control the markets but position themselves as conduits for the existing energy of the markets. They align with secular trends and market flows rather than fighting them, recognizing that they are stewards of capital.

2 | Trusting the intelligence of the energy

Reiki: Practitioners trust that the energy knows where to go and how to help beyond their conscious understanding.

Investing: While the stock markets are often noisy voting machines in the short term, they are weighing machines over the long term. Markets have an inherent sensible intelligence through collective action that exceeds individual understanding, which has to be respected. Panic selling during market downturns often leads to missed recoveries.

3 | Directing energy to areas of need

Reiki: Practitioners intuitively direct energy to areas of imbalance or blockage in themselves or another recipient.

Investing: Smart investors direct capital to long-term opportunities that present attractive, significant, growth, and profitable opportunities that might not be widely recognized or evident. Natural market forces will always dynamically move capital from less to more attractive opportunities over the long term.

4 | Clear channels lead to better flow

Reiki: Practitioners should keep their energy channels clear and chakras in balance through regular self-practice.

Investing: Investors must have clear decision-making channels free from cognitive biases, emotional reactions, and information overload.

5 | Being present without attachment

Reiki: Practitioners remain present and intentional without any attachment to specific outcomes.

Investing: The best investors maintain awareness without emotional attachment to positions, allowing them to adjust when conditions change rather than clinging to hoped-for outcomes. It is about having strong convictions loosely held and being willing to change their minds when the facts change.

6 | Balance as dynamic equilibrium

Reiki: Chakras are not meant to remain in perfect static balance. They naturally fluctuate as we experience life’s ups and downs. Regular Reiki sessions help maintain a dynamic equilibrium for the unbalanced or blocked chakras, allowing energy to flow through all centers.

Investing: Businesses too seldom rise in a straight line. They inevitably experience ups and downs, which causes market expectations to overshoot whenever that happens. Capital allocation for investors is a continuous thought exercise in evaluating and optimizing returns versus risks and tradeoffs. Frequently, businesses undergoing shorter-term weaknesses that might not be structural (contrary to what markets might be pricing in) may experience significant price declines, causing their overall portfolio allocations to become smaller. When that happens, allocating more capital could often present attractive asymmetric returns when they recover.

7 | External influences constantly create imbalances

Reiki: Daily stressors, emotional experiences, and physical challenges constantly affect chakra balance.

Investing: Economic news, market volatility, and expectation shifts can move stock market prices dramatically higher or lower in the short term. That results in a highly dynamic process whereby the portfolio allocations are constantly in flux. Rather than continually trying to have itchy fingers to adjust and tweak the portfolio weights, it is far better for an investor to realize that they need to be emotionally and philosophically balanced about the concept of perpetual imbalances. One can thus adjust one's expectations instead of changing something that brings little value.

8 | There is more interconnectedness

Reiki: Chakras don't function in isolation. An imbalance in one can affect the entire energy system.

Investing: Financial markets are highly interconnected with the economy, businesses, countries, and trends, driving capital flows and broader ripple effects. Imbalances can occur when something goes to the extreme of excessive greed/optimism or fear/pessimism.

9 | Everyone has different balances

Reiki: Each person's optimal energy balance is unique to their body and life circumstances. Everybody has to find and walk their path.

Investing: How each investor invests is different. It depends on their expertise, experience, psychology, time horizon, goals, and risk tolerance. There are many ways to win, and it is unique to every investor. Ultimately, find one that suits you and allows you to win for the long term.

10 | Balance as a process, not a goal

Reiki: The practice is not about achieving perfect balance but developing awareness of energy states and regularly returning to harmony.

Investing: Investment success is not about finding the "perfect portfolio" but establishing systems for continuous monitoring and adjustment and being dynamic about the holdings one wants to own.

11 | The more you give, the more you receive

Reiki: Practitioners understand that energy flows in circuits rather than being depleted. The more you channel universal energy onto others, the more energy pathways open and develop, increasing your capacity as a conduit. This creates a reinforcing feedback loop, where giving energy enhances your ability to receive and channel more energy, a form of energetic compounding.

Investing: When one spends more time and effort on reading, researching, thinking, reflecting, and writing a concise investment memo, it forces an understanding unlike any other to communicate the key points concisely. This allows one to develop and grow pattern recognition abilities and a latticework of knowledge and frameworks. Every bit of “energy” (effort, time, capital) does not just add up; it multiplies exponentially and compounds over time. Similarly, the better you write and communicate, the higher quality people you can reach and attract, allowing you to build better and stronger relationships over time.

12 | Practise gratitude, don’t worry, don’t be angry, work honestly, and show kindness

Reiki: The five Reiki principles (practicing gratitude for the present, not worrying about the future, not being angry about the past, doing work honestly, and showing kindness) should be repeated every day of one’s life. It is not in the knowing but in the doing. Reiki is a way of life one can learn to embody and practice.

Investing: When one appreciates scarcity, one does not need to chase abundance. When one understands what matters long-term, one sees through the short-term noise. When one realizes that mistakes are inevitable, one chooses to focus much more on making sure the winners will outweigh the losers many fold over. When one maintains the highest integrity and honesty in the work that one does, one sleeps soundly every night, knowing that if one keeps doing good work, the universe will come back in many ways you might never fathom. When you realize kindness trumps exploitation, you only want win-win-win situations, no longer win-lose ones.

Concluding words

Reiki and investing present numerous parallels from which we can learn. We are all part of this universe and of this energy transfer. We are all receivers and givers of energy. We receive energy from the food we eat, the air we breathe, the words we read, the voices we listen to, the products we use, and the services we enjoy. We give energy through the words we write, the voice we speak, the work we do, and the actions we take.

Do good, be good, and collectively, we can experience the highest vibration of life; energy is the purest form available to all of us. It is free and limitless. All we need is the desire and understanding to tune into this incredible source.

Just as Reiki recognizes the seamless flow between giving and receiving energy, the most sustainable investment approaches recognize that true wealth creation occurs when capital flows benefit all stakeholders.

By viewing investing through this Reiki-inspired lens, we can transform our relationship with money from scarcity and anxiety to abundance and flow. This approach yields better financial results and greater personal fulfillment.

Thanks to my Reiki Teacher, Svetlana Rao, who teaches Usui Reiki at The Blue Lotus, for the extraordinary Reiki Level 1 session.

24 March 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

Find out more about Vision Capital Fund.

You can read our annual letters for Vision Capital Fund.

Follow us on X or LinkedIn.

Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe the individual investor can beat the market over the long run. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.

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Amazon’s annual shareholder letters offer rare investment insights from one of business history’s most incredible value creators, Jeff Bezos (1997-2000), and later from Andy Jassy (2021-2023).

Beyond typical corporate communications, these letters revealed Bezos’s thinking about building long-term growth and creating enduring shareholder value, transforming Amazon from an online bookstore into a global powerhouse.

These letters are not just corporate communications; they provided a roadmap for identifying exceptional businesses and understanding what makes them worth owning for decades, not just quarters.

By studying Bezos's wisdom, investors can learn to distinguish between merely renting stocks and truly owning pieces of remarkable “dreamy businesses” built for sustained growth and customer delight.​​​​​​​​​​​​​​​​

The letters resonated highly with us, and the themes outlined below were similar to how we invest at Vision Capital Fund. We wanted to share these highlights with you.

1 | Stocks as part owners of businesses

“What Do You Own? At a recent event at the Stanford University campus, a young woman came to the microphone and asked me a great question: “I have 100 shares of Amazon.com. What do I own?” I was surprised I hadn’t heard it before, at least not so simply put. What do you own? You own a piece of the leading e-commerce platform.”

- 1999 Amazon Annual Shareholder Letter

2 | Focus on the long term and creating shareholder value

“It's All About the Long Term. We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.” - 1997 Amazon Annual Shareholder Letter

3 | Be a long-term investor with an owner mindset instead of a short-term renter of stocks

“Long-term thinking is both a requirement and an outcome of true ownership. Owners are different from tenants. I know of a couple who rented out their house, and the family who moved in nailed their Christmas tree to the hardwood floors instead of using a tree stand. Expedient, I suppose, and admittedly these were particularly bad tenants, but no owner would be so short-sighted. Similarly, many investors are effectively short-term tenants, turning their portfolios so quickly they are really just renting the stocks that they temporarily “own.”

- 2002 Amazon Annual Shareholder Letter

4 | The market is a voting machine in the short-term, and a weighing machine in the long-term, find companies that can keep weighing heavier

“So, if the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? As the famed investor Benjamin Graham said, ‘‘In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.’’ Clearly there was a lot of voting going on in the boom year of ’99—and much less weighing. We’re a company that wants to be weighed, and over time, we will be—over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.”

- 2000 Amazon Annual Shareholder Letter

5 | Higher or lower stock prices over the short-term do not warrant any celebration

“As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point– as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.”

- 2013 Amazon Annual Shareholder Letter

6 | Focus on free cash flows, rather than GAAP accounting earnings

“In that 1997 letter, we wrote, “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.” Why focus on cash flows? Because a share of stock is a share of a company's future cash flows, and, as a result, cash flows more than any other single variable seem to do the best job of explaining a company's stock price over the long term.”

- 2001 Amazon Annual Shareholder Letter

7 | Focus on free cash flow per share, not earnings, as working capital and capital expenditures are not factored

“To our shareholders: Our ultimate financial measure, and the one we most want to drive over the long-term, is free cash flow per share. Why not focus first and foremost, as many do, on earnings, earnings per share or earnings growth? The simple answer is that earnings don’t directly translate into cash flows, and shares are worth only the present value of their future cash flows, not the present value of their future earnings. Future earnings are a component—but not the only important component—of future cash flow per share.

Working capital and capital expenditures are also important, as is future share dilution. Though some may find it counterintuitive, a company can actually impair shareholder value in certain circumstances by growing earnings. This happens when the capital investments required for growth exceed the present value of the cash flow derived from those investments.

Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.”

- 2004 Amazon Annual Shareholder Letter

8 | Focus on operating leverage, keeping fixed costs fixed, negative working capital, and high inventory turnover

“Since we expect to keep our fixed costs largely fixed, even at significantly higher unit volumes, we believe Amazon.com is poised over the coming years to generate meaningful, sustained, free cash flow.”

- 2001 Amazon Annual Shareholder Letter

“Since many of our costs, such as software engineering, are relatively fixed and many of our variable costs can also be better managed at larger scale, driving more volume through our cost structure reduces those costs as a percentage of sales.”

- 2003 Amazon Annual Shareholder Letter

“We also like the fixed cost nature of original programming. We get to spread that fixed cost across our large membership base. Finally, our business model for original content is unique. I’m pretty sure we’re the first company to have figured out how to make winning a Golden Globe pay off in increased sales of power tools and baby wipes!”

- 2014 Amazon Annual Shareholder Letter

“We have a cash generative operating cycle because we turn our inventory quickly, collecting payments from our customers before payments are due to suppliers. Our high inventory turnover means we maintain relatively low levels of investment in inventory—$480 million at year end on a sales base of nearly $7 billion.

Amazon.com’s free cash flow is driven primarily by increasing operating profit dollars and efficiently managing both working capital and capital expenditures. We work to increase operating profit by focusing on improving all aspects of the customer experience to grow sales and by maintaining a lean cost structure.”

- 2004 Amazon Annual Shareholder Letter

9 | Knowing the future growth of free cash flow per share, will determine if current stock prices are attractive

“If you could know for certain just two things--a company’s future cash flows and its future number of shares outstanding--you would have an excellent idea of the fair value of a share of that company’s stock today. (You’d also need to know appropriate discount rates, but if you knew the future cash flows for certain, it would also be reasonably easy to know which discount rates to use.)

It’s not easy, but you can make an informed forecast of future cash flows by examining a company’s performance in the past and by looking at factors such as the leverage points and scalability in that company’s model. Estimating the number of shares outstanding in the future requires you to forecast items such as option grants to employees or other potential capital transactions. Ultimately, your determination of cash flow per share will be a strong indicator of the price you might be willing to pay for a share of ownership in any company.”

- 2001 Amazon Annual Shareholder Letter

10 | Find and own dreamy businesses whose products and services customers love, can grow large with strong capital returns, and can be highly durable.

“A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time– with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.

Well, I’m pleased to report that Amazon hasn’t been monogamous in this regard. After two decades of risk taking and teamwork, and with generous helpings of good fortune all along the way, we are now happily wed to what I believe are three such life partners: Marketplace, Prime, and AWS. Each of these offerings was a bold bet at first, and sensible people worried (often!) that they could not work. But at this point, it’s become pretty clear how special they are and how lucky we are to have them. It’s also clear that there are no sinecures in business. We know it’s our job to always nourish and fortify them.”

- 2014 Amazon Annual Shareholder Letter

11 | Find and own truly customer obsessed businesses, for they keep experimenting, reinventing to avoid their decline

“True Customer Obsession There are many ways to enter a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality. Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples. Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.”

- 2016 Amazon Annual Shareholder Letter

12 | Great businesses can have near unlimited upside when they do very well, different from baseball, asymmetry drives power laws, where a few winners account for most returns

“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

- 2015 Amazon Annual Shareholder Letter

13 | Accessing quality can be taught; one must recognise what good looks like, articulate high standards

“Recognition and Scope What do you need to achieve high standards in a particular domain area? First, you have to be able to recognize what good looks like in that domain.

“Intrinsic or Teachable? First, there’s a foundational question: are high standards intrinsic or teachable? If you take me on your basketball team, you can teach me many things, but you can’t teach me to be taller. Do we first and foremost need to select for “high standards” people? If so, this letter would need to be mostly about hiring practices, but I don’t think so. I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure. High standards are contagious.

Bring a new person onto a high standards team, and they’ll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread. And though exposure works well to teach high standards, I believe you can accelerate that rate of learning by articulating a few core principles of high standards, which I hope to share in this letter.”

- 2017 Amazon Annual Shareholder Letter

14 | Have and maintain relentlessly high standards

Perhaps a little less obvious: people are drawn to high standards– they help with recruiting and retention. More subtle: a culture of high standards is protective of all the “invisible” but crucial work that goes on in every company. I’m talking about the work that no one sees. The work that gets done when no one is watching. In a high standards culture, doing that work well is its own reward– it’s part of what it means to be a professional. And finally, high standards are fun! Once you’ve tasted high standards, there’s no going back.

Insist on the Highest Standards. Leaders have relentlessly high standards– many people may think these standards are unreasonably high.”

- 2017 Amazon Annual Shareholder Letter

15 | It will be harder and longer than you think, crucial to have realistic beliefs

“A close friend recently decided to learn to do a perfect free-standing handstand. No leaning against a wall. Not for just a few seconds. Instagram good. She decided to start her journey by taking a handstand workshop at her yoga studio. She then practiced for a while but wasn’t getting the results she wanted. So, she hired a handstand coach. Yes, I know what you’re thinking, but evidently this is an actual thing that exists. In the very first lesson, the coach gave her some wonderful advice. “Most people,” he said, “think that if they work hard, they should be able to master a handstand in about two weeks. The reality is that it takes about six months of daily practice. If you think you should be able to do it in two weeks, you’re just going to end up quitting.” Unrealistic beliefs on scope– often hidden and undiscussed– kill high standards. To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be something this coach understood well.”

- 2020 Amazon Annual Shareholder Letter

16 | Writing concisely forces clarity, brilliance, and quality, and the process cannot be rushed

“Six-Page Narratives. We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of “study hall.” Not surprisingly, the quality of these memos varies widely. Some have the clarity of angels singing. They are brilliant and thoughtful and set up the meeting for high-quality discussion. Sometimes they come in at the other end of the spectrum. In the handstand example, it’s pretty straightforward to recognize high standards. It wouldn’t be difficult to lay out in detail the requirements of a well-executed handstand, and then you’re either doing it or you’re not.

The writing example is very different. The difference between a great memo and an average one is much squishier. It would be extremely hard to write down the detailed requirements that make up a great memo. Nevertheless, I find that much of the time, readers react to great memos very similarly. They know it when they see it. The standard is there, and it is real, even if it’s not easily describable. Here’s what we’ve figured out. Often, when a memo isn’t great, it’s not the writer’s inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more! They’re trying to perfect a handstand in just two weeks, and we’re not coaching them right.

The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope– that a great memo probably should take a week or more.”

- 2020 Amazon Annual Shareholder Letter

17 | Continuously maintain your distinctiveness despite persistent pressures to conform, it is worth it

“In what ways does the world pull at you in an attempt to make you normal? How much work does it take to maintain your distinctiveness? To keep alive the thing or things that make you special?

I know a happily married couple who have a running joke in their relationship. Not infrequently, the husband looks at the wife with faux distress and says to her, “Can’t you just be normal?” They both smile and laugh, and of course the deep truth is that her distinctiveness is something he loves about her. But, at the same time, it’s also true that things would often be easier – take less energy – if we were a little more normal…

We all know that distinctiveness – originality – is valuable. We are all taught to “be yourself.” What I’m really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical – in a thousand ways, it pulls at you. Don’t let it happen.

You have to pay a price for your distinctiveness, and it’s worth it. The fairy tale version of “be yourself” is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but don’t expect it to be easy or free. You’ll have to put energy into it continuously.

The world will always try to make Amazon more typical – to bring us into equilibrium with our environment. It will take continuous effort, but we can and must be better than that.”

- 2020 Amazon Annual Shareholder Letter

18 | In business and investing, compound interest is the world's eight wonder: understand it, earn it, and don’t pay it. Return is the component, time is the exponent.

“Albert Einstein is sometimes credited with describing compound interest as the eighth wonder of the world (“He who understands it, earns it. He who doesn’t, pays it”). We think of iterative innovation in much the same way. Iterative innovation creates magic for customers. Constantly inventing and improving products for customers has a compounding effect on the customer experience, and in turn on a business’s prospects.

Time is your friend when you are compounding gains. Amazon is a big company with some large businesses, but it’s still early days for us. We will continue to be insurgent—inventing in businesses that we’re in, in new businesses that we’ve yet to launch, and in new ideas that we haven’t even imagined yet. It remains Day 1.”

- 2021 Amazon Annual Shareholder Letter (Andy Jassy)

In conclusion, it was apparent that Jeff Bezos knew very early on what a great business would look like, and he probably might have even done very well as a long-term investor, had he not started Amazon.

But Bezos took the giant leap and, with Amazon, has created far more impact than one could have envisioned in shareholder value and jobs, allowing even more businesses and startups to develop and build on top of their technological, marketplace, logistics, cloud infrastructure, and many more to come.

These timeless principles from the Amazon letters offer a framework for identifying exceptional businesses worth owning for decades. They also gave insights into how Amazon has consistently navigated the innovator's dilemma by embracing several principles that Bezos articulated in his shareholder letters.

Investors can apply these lessons by focusing on customer obsession, free cash flow per share growth, and long-term thinking to build strong investment portfolios of “dreamy businesses” that can keep growing, reinvesting, compounding, and presenting attractive asymmetric returns.

16 March 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co

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