--- name: qiuguolu-three-questions lens: Three Questions — Value, Pricing Power, Industry Structure attributed_to: Qiu Guolu (邱国鹭) style: value markets: A-share and HK; designed around industries whose competitive structure has already formed description: Answer three questions in order — is it cheap, does the company have pricing power, and is the industry structure favourable — and refuse to let a good answer to one substitute for a bad answer to another. --- # Three Questions Lens > **Framework, not investment advice.** This is our own summary of a publicly > documented methodology, reconstructed as a procedure. It is not written or > endorsed by the person named, and any verdict it produces holds only under this > framework. ## What this lens optimizes for Simplicity that survives contact with a retail-driven market. It reduces the case to three questions that are answerable from public data, insists all three be answered independently, and treats industry structure as the variable that most often decides the outcome and is most often skipped. ## Market-fit note - Built for A-shares and applies directly to HK-listed China operations. Its structural bias — preferring industries where competition has already consolidated — matches markets with long histories of capacity overbuild and price wars. - Least useful in industries whose structure has not yet formed (early-stage technology, newly created policy-driven sectors), where the third question has no answer yet. Say "unanswerable" rather than guessing. - Government-influenced pricing is a structural fact here, not an anomaly: an industry where the state sets prices has a ceiling on pricing power no matter how concentrated it is. ## Priority signals (walk in this order) **Question 1 — Is it cheap? (便宜是硬道理)** 1. Valuation against the company's own history and against the industry, on the measure that fits the business: earnings multiple for stable earners, book multiple for asset-heavy and financial businesses, cash-flow multiple where accounting earnings are noisy. 2. Test whether the cheapness is real or an artifact of a peak-earnings denominator. Normalize across the cycle before concluding. 3. Cross-check the balance sheet: net cash, investment assets, and property carried at historic cost that the multiple ignores. **Question 2 — Does the company have pricing power? (定价权)** 4. Has it raised prices above input inflation and kept the volume? That is the only direct evidence; everything else is inference. 5. Gross margin level and stability through the last downturn — pricing power shows up as margin that holds when demand does not. 6. Where does the power come from: brand, switching cost, licence, distribution control, or genuine cost leadership? Name it. Cost leadership is a real answer here and is the most durable one in commoditized industries. 7. Bargaining position against both sides: customer concentration, supplier concentration, and the direction of payable and receivable days over five years. **Question 3 — Is the industry structure favourable? (行业格局)** 8. Concentration and its trend — is share consolidating toward the leaders or fragmenting? 9. Capacity: is new capacity still being added, and how long is the lead time? An industry adding capacity into weak demand cannot support pricing regardless of individual company quality. 10. Barriers to entry, and whether they are real (capital intensity, licence, scale economics, distribution) or narrative. 11. Competitive behaviour: is the industry competing on price or on product? A consolidated industry that still price-wars is not a favourable structure. 12. Position within the structure — leader, credible challenger, or subscale. In a consolidating industry the subscale player usually gets worse even as the industry gets better. ## Disqualifiers (hard vetoes) - **Cheap but no pricing power and deteriorating structure** — the classic value trap this framework exists to prevent. - **Good structure and pricing power, but the price already reflects both.** All three questions must pass; a good business at an unjustifiable price fails. - **Industry still adding capacity aggressively** into flat or falling demand. - **Structure unanswerable** because the industry has not formed — out of scope, and the correct output is "this lens does not apply". - **Pricing power inferred from margin alone** with no evidence of a price increase that stuck. High margin can come from mix or from a temporary input-cost windfall. ## Scoring rubric | Question | Pass condition | | --- | --- | | Cheap | Discount versus own history and peers, on normalized earnings, arithmetic shown | | Pricing power | A price increase that held, plus margin stability through a downturn, plus a named source | | Structure | Concentration rising or stable-high, capacity discipline, real barriers, non-price competition | All three must pass. A strong answer to one never compensates for a failed answer to another; that substitution is the specific error this framework was constructed to block. ## Typical misuse - **Answering only question one.** Cheapness is the most easily measured and the least decisive of the three. - **Structure inferred from market share alone.** Share concentration with continuing price wars is a bad structure. Look at competitive behaviour, not just the Herfindahl. - **Applied to industries with no formed structure**, where the answers are invented. - **Ignoring the company's position within a good structure.** A favourable industry does not lift a subscale participant; it often accelerates its decline. - **Treating administered-price industries as having pricing power** because concentration is high. Where the price is set outside the company, the answer to question two is no. - **Ranking simplicity above evidence.** The framework's three questions are simple to ask and not simple to answer; a one-line answer to any of them means the work was not done. ## Falsifiers - A price increase is rolled back or volume collapses after it → question two fails, regardless of historical margin. - New capacity announcements accelerate → question three fails, and cheapness becomes irrelevant. - Normalized mid-cycle earnings come in far below trailing earnings → question one was answered on a peak denominator and must be redone. ## Output contract Report under the skill-level output contract. State the verdict as "under a three-questions framework, …", answer all three questions separately with their own evidence, and state explicitly which question is the binding constraint. This is analysis, not investment advice.