I begin with a senior investor’s thoughts on what makes a company “lucky.” I prefer companies that build a core moat and gradually reduce the role luck plays in their fate. In essence, that means occupying the strongest position in an ecosystem’s power structure. The direction in which a moat is changing matters more than its static depth today.

Revisit a principle repeated last year: invest in lucky companies.

  • Truly exceptional companies that create their own era—Apple, Tesla, and Nvidia, for example—are rare. Most companies rise and fall with their era. Except on rare occasions, therefore, most of our investments are in companies aligned with the times: “lucky” companies.
    • Muyuan is a good company, but it loses money when it is unlucky. When an industry cycle coincides with a major industry event, however, Muyuan becomes lucky enough.
  • Focus more on how lucky a company is and how closely it fits its era.
  • Also look up and see where the road is heading: understand the era and ask who may be a lucky company within it.
  • Do not remain attached to companies simply because they have been lucky. Luck can run out. When everything looks good, always keep part of your mind ready to exit.
    • Universal praise may mark the peak of a company’s luck. Praise attracts imitation, and the luckiest period may already be ending.
    • Be especially cautious if management starts boasting about how it succeeded. If the leader has become carried away, sell decisively.
    • When a company no longer seems as lucky, sell. Framing the decision this way lowers the psychological barrier.
  • Whenever a company materially changes its strategic direction, reduce the position first, however attractive the explanation. A strategic shift often means the old luck is ending and new challenges are arriving. Observe before judging.

Luck is a useful lens and overlaps with how I think about “power structures.” In some ecosystems, the power structure is stable and value in the chain remains firmly controlled by the most powerful participant. That power comes from a window of opportunity, a brand, technology, or another advantage that creates a position in which “only I can do this.” The US dollar, Hermès, and Apple are typical examples. The key risk is that once the brand or technology supporting that power disappears, the stable structure begins to change. The benefit is durability: even when change begins, investors usually have time to collect, understand, and act on information.

In another type of ecosystem, the power structure is unstable, and control of the value chain can shift dramatically over a short period. This happens when no participant can sustain a position of “only I can do this.” Power gathers mainly because conditions inside or outside the ecosystem change—what we call luck. In cyclicals or commodities, for example, bargaining power may sit with sellers for two or three years, then move to buyers after supply expands.

A company or asset participates in multiple ecosystems, which may compete with or contain one another. Kodak held the central position in the relatively stable film-camera ecosystem. Digital cameras then competed with film, while the broader imaging ecosystem created by digital cameras and smartphones had a far less stable power structure. An investor therefore cannot ignore changes in every ecosystem to which an asset belongs.