NetEase
“I remember a reporter once asked why I had the courage to buy NetEase back then. I said: something worth 10 yuan, someone is crying and begging to sell it to you for 1 yuan — what do you need courage for?” — Duan Yongping (2011-05-08)
🏢 Basic Information
- Industry: Internet / Gaming
- Purchase Time: Around 2002, when NetEase’s stock price fell below $1
- Purchase Price: Around 1 (at its lowest)
- Sale Time: Around 2010, most sold at $30–35 (added more when up 20–30x, eventually sold at over 100x)
- Investment Return: Over 100x
📅 Investment Timeline
| Time | Event | Duan Yongping’s Judgment |
|---|---|---|
| 2002 | Bought around $1/share; bought nearly 500,000 shares in one day on the last day | Bullish on gaming market, within circle of competence believed he was buying the company regardless of listing status |
| 2002–2010 | Held for 8–9 years; added more positions when up 20–30x | Used ordinary mind to resist daily temptation of selling prices |
| Around 2010 | Most sold at $30–35 | Rotated into GE and Yahoo |
| Later | Kept some NetEase shares | ”I’ll always keep some NetEase shares” |
💡 Duan Yongping’s Core Views
Why Buy NetEase?
- Deeply understood gaming; was very certain they would earn lots of money in the future — “When I was at Subor I already gained much understanding about games; this kind of understanding isn’t taught in school, isn’t in books, and can’t be seen from financial reports”
- Good business model: Online games are highly differentiated products
- Extremely undervalued: Something worth 10 yuan, someone crying and begging to sell it to you for 1 yuan
How Did He Hold Through 100x?
- Understanding of the company and its business — only those who truly understand the company and business can do this
- Ordinary mind — don’t think about purchase cost; focus on future cash flows you can understand
- Buying stocks is buying companies — treat stocks like unlisted companies; without stock price fluctuations it becomes clear
Why Sell NetEase?
- Rotated into GE and Yahoo (which later were both rotated into Apple again)
- Ding Lei is like a big kid — didn’t feel comfortable with so much money in his hands — Duan Yongping’s concern about NetEase’s cash management
❓ Selected Q&A
Q: Did buying NetEase require great courage back then?
A: I remember a reporter once asked why I had the courage to buy NetEase back then. I said: something worth 10 yuan, someone crying and begging to sell it to you for 1 yuan — what do you need courage for? (2011-05-08)
Source: Duan Yongping Investment Q&A (Investment Logic), 2011-05-08
Q: Why did you add more to NetEase when it was already up 20–30x?
A: In fact, we did add more to our position when NetEase was up 20–30x. The main reason we could hold on was understanding of the company and its business, plus having an ordinary mind — don’t think about purchase cost; focus on future cash flows you can understand.
Source: Duan Yongping Investment Q&A (Investment Logic), 2010-05-13
Q: Did you feel lonely buying NetEase?
**A}: Speaking of loneliness, reminds me of when I bought NetEase back then. From when I started buying until the day NetEase fell below ¥1 for a full 3 months — totaling over two months — my buy orders probably accounted for half of all daily orders each day (only a few thousand shares traded daily). It really felt lonely back then, especially that last day when I suddenly bought nearly 500,000 shares. Apparently sellers that day feared delisting after the 3-month period ended. The buyer’s thinking was very simple: believed he was buying the company, listed or unlisted didn’t matter. Loneliness is sometimes indeed priceless.
Source: Duan Yongping Investment Q&A (Investment Logic), 2012-05-21
Q: When someone insists on selling you gold at copper prices, do you need courage?
**A}: When someone insists on selling you gold at copper prices, you don’t need courage; you just need to confirm it really is gold (though it could be gold-plated iron or stone). Buying NetEase I felt somewhat lonely, as if I was the only person in the world buying.
Source: Duan Yongping Investment Q&A (Investment Logic), 2010-03-05
Q: Why did you sell NetEase?
A: Because Ding Lei is just a big kid — didn’t feel comfortable with so much money in his hands, even though the stock price may prove I sold wrong. (2018-09-30)
Calling Ding Lei a “big kid” absolutely isn’t derogatory! “Big kid” means although he’s an adult, he’s very pure, doesn’t scheme against people, makes a great friend. As for selling most of the NetEase shares, facts also prove that was wrong haha, although at the time I sold to rotate into Yahoo, which later got rotated into Apple, but holding until today might have been slightly better.
Source: Duan Yongping Investment Q&A (Investment Logic), 2018-10-05
Q: What allowed us to make over 100x on NetEase?
**A}: We could make over 100x on NetEase because when I was at Subor I already gained much understanding about games; this kind of understanding isn’t taught in school, isn’t in books, and can’t be seen from financial reports.
Source: Duan Yongping Investment Q&A (Investment Logic), 2010-02-07
Q: NetEase has too much cash on hand — what do you think?
**A}: I remember telling Ding long ago that NetEase’s biggest problem might be having too much cash. Obviously there’s much more now than back then, but Ding Lei doesn’t seem to have made any major mistakes despite having so much cash — this is very difficult to achieve. Even Old Buffett said he tended to make mistakes when he had too much cash. If NetEase has confidence in their company’s future, share repurchase is always the best way to deploy cash (at reasonable prices).
Source: Duan Yongping Investment Q&A (Investment Logic), 2011-12-02
Q: Is investing about making money?
**A}: Haha, interesting question. Well, for most people, investing of course is about making money. The investing process itself is enjoyable too. So personally for me, enjoying the process might be more important since results aren’t as critical anymore. But good results can help others too, making it a nice byproduct.
Source: Duan Yongping Investment Q&A (Investment Logic), 2010-04-24
📊 Investment Insights
Core lessons from the NetEase case:
- Circle of competence determines everything: Duan Yongping understood gaming, so he could buy when others were fearful and hold through 100x gains
- Buying stocks is buying companies: Treat stocks like unlisted companies and you won’t be affected by stock price fluctuations
- Ordinary mind: Don’t think about purchase cost; focus on future cash flows you can understand
- Loneliness is priceless: You’re buying alone while everyone else is selling
- Don’t easily sell good companies: Sold at 100x+; if not sold could be 500x now — “So don’t轻易 sell good companies”
💬 Original Quotes
“From when I started buying until the day NetEase fell below ¥1 for a full 3 months — totaling over two months — my buy orders probably accounted for half of all daily orders each day (only a few thousand shares traded daily). It really felt lonely back then, especially that last day when I suddenly bought nearly 500,000 shares. Loneliness is sometimes indeed priceless.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2012-05-21)
“Because Ding Lei is just a big kid — didn’t feel comfortable with so much money in his hands, even though the stock price may prove I sold wrong.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2018-09-30)
“Good companies are those that know how to spend money. In this regard NetEase isn’t quite a good company; too much cash sitting idle. Cash left unused depreciates!” (Source: Duan Yongping Investment Q&A (Investment Logic), 2014-06-06)
“Personally for me, enjoying the process might be more important since results aren’t as critical anymore.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2010-04-24)
“We could make over 100x on NetEase because when I was at Subor I already gained much understanding about games; this kind of understanding isn’t taught in school, isn’t in books, and can’t be seen from financial reports.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2010-02-07)
“When I sold I’d made roughly 100x+; if I hadn’t sold might be 500x now. So don’t轻易 sell good companies haha.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2019-03-20)
🔗 Related Notes
Related Concepts Circle of Competence · Buying Stocks Is Buying Companies · Ordinary Mind · Long-termism · Differentiation Related People Duan Yongping · Ding Lei Related Topics Duan Yongping’s Classic Investment Cases · How to View Market Volatility · Selling Logic: Why Duan Yongping Rarely Sells