Xueqiu Founder Fang Sanwen: "We Want to Change Investing the Way Taobao Changed Retail"

Xueqiu, home to tens of millions of retail investors, now lets users buy whole stock portfolios directly, and next month it starts selling US stocks. Gamblers and value investors alike are its target users.

Whatever you think of investing, over the past few months it has been hard to avoid remarks like "I put in 200,000 yuan and I've made 100,000 in the last three months."

In the past eight months the Shanghai Composite Index has risen more than 100%. The stories keep coming: investors mortgaging their homes to buy stocks, Baofeng Technology hitting its daily limit-up more than 30 times in a row, brokerages working around the clock to open accounts. More than 10 US-listed Chinese companies have announced plans to delist, and most of them intend to list again at home.

The Shanghai Composite Index over the past year

People read today's market in different ways.

But Fang Sanwen, who three years ago, when China's stock market was in the doldrums, posted constantly on Weibo, wrote columns and collected his writing on value investing into books, now says less about the market than he used to.

"I firmly believe my own approach to investing is right, but I won't force it on anyone. Xueqiu is just a platform: if you want to gamble, gamble; if you want to invest, invest," Fang, Xueqiu's founder, told a QDaily reporter on Tuesday afternoon in his office at Wangjing SOHO in Beijing. He had just come out of a half-hour all-hands meeting. "In the end everyone makes their own choice, and you can't interfere with it."

Xueqiu's download ranking in the China App Store over the past year

Xueqiu's daily visitor numbers have grown ninefold since last September.

Xueqiu began in 2010 as iMeigu, a news website about US stocks, and at the end of 2011 it set up Xueqiu, a community where investors swap views. In 2013 iMeigu became an investment fund, and Fang turned his attention to the Xueqiu community and the products that grew out of it. Xueqiu now has more than 90 employees.

Last October Xueqiu launched Portfolios. It was the first investment community where users could see at a glance how well top investors pick stocks and track how those picks perform.

Feidan ("flash order"), built on top of Portfolios and launched earlier this month, is the most direct expression yet of Fang's long-standing line that "Xueqiu will make its money from trading." Feidan lets users buy, in one go, the stock portfolios published by people they follow. Choosing stocks, opening an account and placing the order have all been reduced to functions inside the Xueqiu app.

Feidan does little for the kind of investing Fang has long preached: studying stocks seriously and respecting the market. It may suit beginners better.

Built up over five years, Xueqiu's community, Portfolios and Feidan together cover the whole process of analyzing and trading stocks. Products such as Wind and Dazhihui each meet a single need; Xueqiu covers all of it.

But Xueqiu's growth has tracked the stock market on the way down as well as on the way up. This week, two weeks after Feidan launched, the Shanghai Composite drew its steepest downward curve in six months. Xueqiu's download ranking in the app stores fell along a curve just as steep.

China's A-share market cannot rise forever. To ride out its swings, Xueqiu will launch Feidan for US stocks within the next month. Over the next six months it will also add trading in other investments, such as bonds and money market funds.

Challenges remain. Xueqiu has to connect a large number of new products, and US stocks will almost certainly draw fewer investors. And for years, what users have discussed on Xueqiu has been mainly stocks, not other, safer investment products.

Here is our full interview, on how Xueqiu is building its own trading platform and how Fang imagines a new way to invest:

QDaily: When Qihoo 360 delisted, you posted a single "sigh" on Xueqiu. Why?

Fang Sanwen: That was purely personal, of course. I used to like investing in Chinese internet companies, and most of them are listed in the US. Now they are delisting one after another, so that market (for China-concept stocks) no longer exists, and I do feel a faint sadness.

For a company, if the conditions are there, listing at home is always better than listing abroad, because it costs your shareholders much less to understand you. That is undoubtedly a good thing. My little sigh isn't worth mentioning.

Coming home is certainly good for the companies; for the stock market I can't say. It will definitely widen the range of A-share listings and raise the quality of listed companies. But whether A-share prices will rise by then is hard to say.

QDaily: How do you divide your own time in running the company?

Fang Sanwen: I do roughly two things. One is using Xueqiu as a user. The other is acting as the company's so-called boss: managing the Xueqiu team, setting its goals, dividing up the work and signing off on the results. That's about it.

QDaily: You once said Xueqiu might be the only company that encourages its employees to trade stocks. Is that still true?

Fang Sanwen: I really need to revise that statement now. In general I do encourage employees to trade stocks. I want them to understand users' needs and our own product. But as the business moves further into trading, we run into compliance issues.

So we have placed more and more restrictions on trading. Have you noticed that whenever our employees now post anything about a stock, they have to note whether they hold it?

And for any action an employee takes in the back end that involves a stock, they must also note whether they hold it.

So on the whole, our employees will enjoy trading stocks less from now on.

QDaily: Over the years, has any employee come to you saying they were trading so well that they would rather quit their job and trade full-time?

Fang Sanwen: No one has resigned for that reason yet. I don't know why. At least it shows that making money from stocks isn't so easy.

QDaily: You have been running iMeigu and Xueqiu for five years. Has your impression of Chinese investors changed?

Fang Sanwen: I don't think investors have changed. The vast majority buy when prices rise and sell when they fall. No one can change that.

But if you have enough users and enough strategies, you can certainly meet all sorts of different needs.

Some people are suited to betting on a single stock; others can manage portfolios that span asset types and markets.

Xueqiu offers a wide range of choices and lets people pick.

I firmly believe my own approach to investing is right, but I won't force it on anyone. Xueqiu is just a platform: if you want to gamble, gamble; if you want to invest, invest. In the end everyone makes their own choice, and you can't interfere with it.

Whether someone "invests" or "speculates" is, on the whole, bred in the bone and hard to change. A gambler or a value investor was already one at 16. It is neither possible nor necessary to talk people out of it.

How does Xueqiu keep the quality of its community up?

QDaily: When you started iMeigu, US stocks were a natural barrier to entry. Now a flood of A-share users has arrived, especially new investors since the market heated up. How do you keep the discussion good?

Fang Sanwen: I think it's simple. Quality has to be built on quantity; without quantity there can be no quality. Especially with user-generated content, quality without quantity is a fantasy held by a few people. It doesn't exist.

QDaily: Aren't you worried this will drag down the quality of the community?

Fang Sanwen: Many users ask: this person is so bad, why not kick him out?

We are fairly pessimistic, in the sense that Xueqiu doesn't believe Xueqiu as a company is capable of making that judgment.

But on the optimistic side, we have a saying: "You can fool all of the people some of the time, and some of the people all of the time, but you cannot fool all of the people all of the time."

We believe the openness of the community will solve this problem in the end.

QDaily: What do you do in practice?

Fang Sanwen: Interaction among users is the main way content gets filtered. If a post sparks strong interaction, it must be a good post. Or a post may start out as a bad one, but if users engage with it strongly, their replies can turn it into a good one.

That matters most of all; every other measure is secondary.

QDaily: Is there data on interaction that tells you whether the community is developing in a healthy way?

Fang Sanwen: Mainly we look at the number of posts, then the number of replies.

QDaily: Are those similar to the metrics you watched in the forum era?

Fang Sanwen: Yes, somewhat similar. But we added personal subscriptions. Our timeline is the result of what you subscribe to; it isn't something we push at users. Subscriptions take care of each user's individual needs.

Everyone has a different standard for whether content is good. You think this person is very skilled, and I think he is terrible. So you subscribe to him and I don't. Subscriptions are there to keep everyone as comfortable as possible: everything you subscribe to is something you want to see.

What did Xueqiu build last year?

QDaily: Xueqiu launched Portfolios last October. Where did the idea come from?

Fang Sanwen: At a meeting last July we discussed the problems we faced. Before Portfolios, Xueqiu was a social network built around text. We asked ourselves: does this social network actually meet users' needs? Our conclusion was that it didn't.

Why not? Users still wanted to know which stocks to buy, but after reading most posts they still didn't know what to do.

Second, when they read a post they couldn't tell whether it was reliable.

Third, even when they read a good post and knew what to do, which was to buy a stock, they had to go somewhere else to buy it.

We had to solve this. Users had to know what to do, be able to check whether it was reliable, and be able to carry out the plan right here.

We concluded that only Portfolios plus trading could solve these problems, which most forums had never solved either.

QDaily: On social networks, older content has more followers and so always spreads more easily. Will Xueqiu promote new content?

Fang Sanwen: We basically don't do much promoting on that front. Every portfolio has to run and be tested over time.

QDaily: From the start, did you plan "trading" together with Xueqiu Portfolios?

Fang Sanwen: Yes. Portfolios were bound to lead to this. From the day we started building Portfolios, we knew we would do it. Portfolios launched in October last year. We knew a portfolio needs to run for a while before it attracts followers and proves whether it works.

At some point a user decides that a portfolio is good, or that the portfolio they built themselves is good, and wants to trade it. But at that moment, having to punch numbers into a calculator to work out how many shares to buy, then type a password into another app, is really annoying. By connecting brokerage accounts, we handle it all in one place.

Users were bound to want this. When we started on Portfolios we already knew what the need looked like.

QDaily: Creating a portfolio is probably easier than analyzing a company. Won't everyone start building portfolios and produce a flood of bad ones?

Fang Sanwen: Building a portfolio is easy, but it is researching the companies that gives you the confidence to trade according to that portfolio.

Many users tell us that the paper portfolios they built have great returns while their real-money returns are terrible. That happens a lot.

QDaily: Nearly all of China's big e-commerce companies are now building investment platforms. What sets Xueqiu apart?

Fang Sanwen: Having a trading function is easy. Giving users a reason to trade with you is hard.

The second is the crux. Our core is giving users a reason to trade with us.

We changed the supply of strategies from a specific few (brokerage analysts) to an unspecified many.

The first group is small, and it mainly serves institutional clients and high earners, so ordinary investors can't get that service. More important, holding a license doesn't mean you can invest well. That is fatal.

So we opened up the supply of strategies to an unspecified many, and let the market test those strategies.

Suddenly the number of strategies explodes, and then "quality" emerges from "quantity."

This has happened in many industries. On Taobao, the merchants aren't department stores like those on Wangfujing but lots of small, unlicensed vendors, and many of them have grown.

On Weibo, the people who publish news aren't hired professionals but countless people who were part of the news themselves. That brought a huge increase in the amount of news, and better quality too.

QDaily: Brokerages hired analysts to pick stocks, and if they did well, they were rewarded financially. But when a user publishes a portfolio on Xueqiu, other people buy it and it goes up, what does that user get out of it?

Fang Sanwen: That is where we will ultimately be most disruptive. The paid service we shut down earlier was mainly meant to reward these people.

It ran into some problems because it wasn't compliant. But we will certainly find a better way later, and we will make sure the people who provide good strategies earn more than analysts do.

Second, the market we are going after is really mobile trading, which is more convenient.

So our strategy is simple: crowdsourced strategies, trading on the phone, and letting the market do the filtering.

How does Xueqiu handle trading?

QDaily: How big did Portfolios have to get before you decided to launch trading?

Fang Sanwen: Around November last year, when Portfolios had just gone live, we more or less started preparing for trading. After six months Portfolios had plenty of followers, so we launched trading.

If we had started with trading, we would certainly have had very few users.

QDaily: Feidan's slogan is "One step ahead: buy 10 stocks in one second." Doesn't that clash with the idea of value investing?

Fang Sanwen: No, there's no clash. Investing through portfolios is already one of the more professional, value-oriented ways to invest. Gamblers are the ones who keep betting on a single stock; more mature investors generally build portfolios.

They aren't really managing individual stocks; they are managing a portfolio. All our feature does is make trading a portfolio more convenient.

If you ask how the internet disrupts traditional industries, its effect at each specific step is tiny; put plainly, it just makes things more convenient. Compared with opening a brokerage app and typing in stocks one at a time, this is more efficient.

Feidan has nothing to do with how you invest. Gamblers can use it, and so can value investors.

QDaily: Why is Feidan so hard to find? On the phone it takes several taps to open, and on the computer you can't find it at all.

Fang Sanwen: We're taking it step by step. Because it's a new feature, we put it somewhere less prominent at first and let longtime users who know Portfolios well start using it. The problems that come up will make it more and more mature.

After that, we'll restructure the product to make it more and more prominent. Perhaps two versions from now, Feidan will be the first thing you see when you open the app.

QDaily: Feidan puts everything from opening an account to trading on the phone. That must have taken a lot of groundwork.

Fang Sanwen: Yes. Users love using it, but we pay a high price for it. That's how good products are: they feel so simple to use, but behind them the company has done a great deal of product and technical development and business negotiation.

QDaily: What were the challenges in negotiating with brokerages?

Fang Sanwen: There are two main ones. The first is getting them to cooperate. Some brokerages are very willing to work with you, and some simply aren't. With the unwilling ones there's nothing I can do.

At present, no third-party trading app has managed to persuade every brokerage to work with it.

The second is compliance. The China Securities Regulatory Commission and the Securities Association of China have changed their policies on third-party trading many times along the way, and each time we've had to adapt.

What constrains us is mainly how willing brokerages are to cooperate, and regulatory compliance.

QDaily: How is Xueqiu's staff divided up?

Fang Sanwen: We now have more than 90 people, in four parts.

There's the community and market-data group, which mainly develops community products; second, the trading group, which builds Portfolios; third, the channel group, which mainly negotiates with brokerages; and finally administration, finance and HR. The first three are about the same size.

QDaily: Which of this year's policies have had a big effect on Xueqiu?

Fang Sanwen: The policy allowing one person to open multiple brokerage accounts has been very good for us; without it our business would be much harder now.

The policy on third-party access to brokerages also has a big effect on us, and I wouldn't call it negative. For a while it restricted third parties. Then a threshold was introduced, and we found we met the conditions.

First, it requires that the connecting party be a member of the Securities Association of China and register with the association. We happened to be a member already, and because we had taken part in the association's activities, it was easy to earn the trust needed to register.

QDaily: So is Feidan for Portfolios mainly aimed at A-shares?

Fang Sanwen: It covers everything. US stocks too.

QDaily: Does that mean I can put Apple and Baofeng Technology in the same portfolio?

Fang Sanwen: In theory, yes. But because the trading channels are different, for now we only offer portfolios within a single market.

You can have an A-share portfolio and a US-stock portfolio, but you can't mix them, because a trade would have to be sent to two brokerages, which gets messy.

QDaily: When will US-stock trading launch?

Fang Sanwen: Within a month.

QDaily: In terms of preparation, is US-stock trading simpler or harder for you?

Fang Sanwen: Some parts are simpler and some are harder. The simple part is that you don't need to connect to many brokerages, because transferring and opening US-stock accounts is very easy.

Say I'm with Brokerage A and decide Brokerage B is particularly good. I can open an account with Brokerage B, which is very easy and takes half an hour at most. Then I move my assets from Brokerage A to Brokerage B at the press of a button.

The hard part is that brokerages' IT systems for US stocks are even less standardized than those for A-shares. They vary enormously from one brokerage to the next.

So for US stocks there's no need to connect lots of brokerages; we just connect the ones we think best fit our needs.

QDaily: Since you started building Portfolios and trading, has anything turned out differently from what you expected?

Fang Sanwen: It's mostly as we expected. Perhaps Portfolios has been more popular with users than we imagined: more than 500,000 portfolios were created in the past half year or so. This year the number will certainly pass one million.

QDaily: Why did Xueqiu put trading on the phone first? Xueqiu's website still doesn't offer a desktop version.

Fang Sanwen: We have no plans at all to offer Feidan on the web.

Users send us all sorts of suggestions about Feidan, but very few ask for it on the computer. That shows users' trading has moved entirely to their phones, and there's simply no need to build trading for the PC.

The world has changed. It has gone fully mobile.

QDaily: What can you offer "not-so-smart investors" to help them trade?

Fang Sanwen: They may end up being the people who use Xueqiu most. They see that someone's portfolio looks good, and they buy it.

How exactly does Xueqiu make money?

QDaily: Is it fair to say Xueqiu is now turning from a community into a complete product?

Fang Sanwen: Yes. It's a road many communities have already proven: "community plus e-commerce."

Advertising is certainly a very mature business model, but I think it has problems too.

In the traditional advertising model, you're over here discussing affairs of state, and over there an ad recommends an Audi. I think that's a terrible business model, because what you discuss doesn't match what's being sold.

On Xueqiu, whatever people discuss is what we sell; the match is complete. So Xueqiu is bound to turn users into customers far more efficiently than the advertising model does.

Xueqiu's second strength is that content can directly guide trading. Third, the trade is completed inside the app.

Taken together, these three will make commerce enormously more efficient.

We have only just begun, but I don't have the slightest doubt about this.

QDaily: How exactly do you plan to make money?

Fang Sanwen: Commissions. Commissions on buying and selling stocks and on selling products. That part is traditional; there's nothing to innovate. We send traffic to brokerages and share the revenue.

QDaily: Aren't you worried about the commission model? Commissions keep getting cut and might one day fall to zero.

Fang Sanwen: Right. There are two kinds of commission model. If all you provide is a channel for trading, the commission will certainly trend toward zero. The fatal part is that everyone offers the same thing, and new brokerages will always cut prices to attract new users.

But if you provide services users need, such as portfolios and strategies, they are willing to pay a higher commission.

QDaily: Why did Xueqiu drop the option of paying to view portfolios?

Fang Sanwen: It was a compliance issue. We switched from charging up front to charging afterward. From now on we won't charge users directly.

QDaily: When it comes to trading, what numbers do you care about?

Fang Sanwen: Right now we mainly look at the number of orders, meaning completed trades.

Portfolios have very detailed metrics, such as how many people follow a portfolio and the total number of follows. We watch these because portfolios have to be able to spread.

What will Xueqiu do next?

QDaily: What is Xueqiu's ultimate goal?

Fang Sanwen: First, we have a strategic goal, which we describe like this: we want to become China's platform for allocating assets across markets and across asset types. That is how our company defines itself.

To make that goal concrete, we currently have two targets: (growth in) the number of users and the number of trades. Trades include both Feidan and ordinary trades in single stocks.

QDaily: Will you try anything else like Portfolios that turns information into structured data?

Fang Sanwen: We won't come up with another new thing. We'll keep going down this road. For now, Portfolios is where people test their own approach to investing; next it will become an entry point for users to buy.

We'll put enormous effort into buying, so that users come to rely on it.

If in the end we bring every asset type (stocks, funds, bonds) on board, that alone is a very big undertaking. You can hardly imagine how big, and so far no one has pulled it off. In this area we are now far ahead.

Doing this well will take a great deal of our company's resources, time and people. And its commercial value is already big enough. So at this stage we have no need to come up with anything new.

QDaily: One April Fools' Day Xueqiu launched Qingxubao ("Sentiment Treasure"). That was purely a joke, right?

Fang Sanwen: Yes, that was a joke.

QDaily: Would you seriously consider a product like that? Some companies are already doing something similar, gauging investment intentions from information on social networks.

Fang Sanwen: Oh, we will soon issue two public mutual funds of our own, built from data inside Xueqiu.

But I see that as a side branch. Our core business is still letting users produce strategies, carry them out and allocate their assets on Xueqiu.

QDaily: Is this related to the iMeigu fund?

Fang Sanwen: Not really. I'm a shareholder in the iMeigu fund, but I have nothing to do with running it now.

QDaily: So on Xueqiu, the iMeigu fund is just like any other product?

Fang Sanwen: Yes, it's just a product. There are many private funds in the world, and it's only one of them.

QDaily: Why did you start a private fund in the first place?

Fang Sanwen: It was actually quite simple. iMeigu was a media outlet, and we kept a group of analysts to study listed companies. Once we built Xueqiu, we realized we didn't need to produce content ourselves. Wouldn't those people be out of work? If they were, we had to find them something to do.

The best solution was to give them a sum of money to invest according to their own analysis. If you make money, your analysis was right; if you don't, your analysis was wrong, so stop analyzing.

QDaily: Xueqiu is plugging deeper and deeper into the whole process. Would you consider becoming a brokerage yourselves?

Fang Sanwen: Let time answer that.

QDaily: Since the end of last year, several companies have announced equity crowdfunding platforms, and JD.com's and 36Kr's are already live. What do you make of this way of investing?

Fang Sanwen: I have no particular view. Xueqiu isn't interested for now. On the whole it's a fairly niche, illiquid market. For now Xueqiu is giving priority to large, highly liquid markets.

QDaily: You've studied the market for many years. Will Xueqiu go public?

Fang Sanwen: I think it's too early to say. No company should treat going public as its goal. It should create value for users and keep part of the value it creates; then it can survive. Going public isn't the ultimate goal, just a stage along the way.

The first problem a company has to solve is survival.

What will Xueqiu do if a bear market comes?

QDaily: Xueqiu's app-store ranking has risen roughly in step with the Shanghai Composite. How many users does it have now?

Fang Sanwen: Since September last year, daily active users have grown about ninefold.

QDaily: So what will Xueqiu do when the market falls?

Fang Sanwen: Once trading across markets (A-shares, Hong Kong, US) and across asset types (stocks, funds, bonds) is driven by strategies, you can keep returns steady even when the broader market falls.

When a bear market comes, people will find that this is what's really valuable.

I think the more mature investors are, the more their investing is about allocating assets rather than simply buying and selling a single stock.

QDaily: Why did you start with stocks?

Fang Sanwen: Stocks are the asset users accept most easily, and the most liquid.

QDaily: Is there a rough timetable for adding all the other kinds of investments?

Fang Sanwen: The second half of this year.

QDaily: Do you think the stock market is in a bubble? The debate hasn't stopped.

Fang Sanwen: I don't know. You only know it was a bubble once it bursts.

It's an eternal question. At 1,600 points some people said it was a bubble, and at 6,100 points some people still said it was a bubble.

QDaily: So you're saying Xueqiu doesn't care whether it's a bubble?

Fang Sanwen: Right. I think, from Xueqiu's point of view and the investor's, the answer in the end is allocating across markets and asset types and using multiple strategies to handle risk, not us calling the market.