Insights
Truth Is Not Negotiated, But Discovered
Tan traces his approach to investing back to a scientific upbringing (both of his parents taught physics in Malaysia). He treats intrinsic value the way a natural scientist treats a physical phenomenon; it exists as an objective fact independent of consensus or perception, even though no one can observe it directly. The task of a value investor, in his framing, is not to read what other investors currently believe a business is worth, but to approximate, with necessarily imperfect tools, what it is actually worth.
A Moat Is Not a Synonym for Quality
In the investment world, "quality" is often used loosely to describe a business with high margins, high returns on capital, or a large market share. Tan says those metrics are just outcomes, not explanations; they tell you that a business is currently doing well, but not why it's able to keep doing well. His definition of a moat is meant to answer that question: a barrier to entry that lets a business keep earning unusually high profits year after year, instead of watching those profits fade as rivals move in. He notes that this is genuinely rare, since in a normal, competitive market, big profits are supposed to attract competitors who eventually compete them away; a business that keeps earning outsized profits for decades, without that happening, is the exception. He pointed to the list of companies widely seen as the best businesses in the 1980s (GE, Xerox, DuPont, Eastman Kodak, IBM, Walmart, and Coca-Cola among them) and noted how few of them kept those same economics decades later; Warren Buffett's purchase of Coca-Cola in the late 1980s is a case of correctly spotting a moat that would last, at a time when much of the market didn't see it.
Clock Speed and Moat Strength Are Different Questions
Beyond identifying a moat, Discerene separately evaluates what Tan calls the “clock speed” of a business, meaning how quickly it changes. He distinguishes fast-changing businesses (“fruit flies”), moderately durable ones (“cats and dogs”), and slow-changing, highly durable businesses (“sea turtles”), and argues that a common and costly mistake, one that has affected parts of the software sector recently, is valuing a fast-clock-speed business as though it had the durability of a sea turtle.
A Thesis Has to Be Falsifiable
Tan's legal training at Oxford shaped an insistence that an investment thesis function as a testable argument rather than a persuasive story; it must be capable of being disconfirmed by evidence. Discerene writes out a thesis for every holding and treats it as provisionally true only until such evidence appears. When the gap between price and the firm's estimate of intrinsic value widens without this evidence emerging, Tan said the appropriate response is typically to buy more.
The Fund Structure Is Built to Enable the Philosophy
Tan described Discerene as “private equity-like”: multi-year investor-level gates, multi-year crystallization of incentive allocations, and a capital-commitment structure in which investor capital remains uncalled until Discerene identifies an opportunity. Unlike private equity funds, its vehicles have no terminal life or mandatory harvesting period; this structure allowed the firm to call capital during the March 2020 dislocation to focus on internal rates of return (which he argued better reflect what investors actually experience) rather than time-weighted returns, and to return capital to investors, as it did a few months before this conversation, when it did not see compelling opportunities to deploy it.
Mark-to-Market Pricing, Not the Underlying Business, Is What Erodes Patience
Tan argued that the same business, held privately, would prompt little anxiety in its owners, but that once it is priced daily in public markets, comparison against other funds' returns creates pressure disconnected from the business's actual earnings power. He described what he calls the “institutional immune system,” or the tendency of investment committees to respond to a period of underperformance with a formal inquiry into what went wrong, a process that, even when it concludes no error was made, still produces a chilling effect on future contrarian decisions.
Correlation Arguments for New Asset Classes Often Rest on the Wrong Benchmark
Tan pushed back on the common practice of allocating to asset classes like private credit or cryptocurrency based on low correlation to public equities, arguing that the theoretically correct benchmark, one spanning all global assets, public and private, doesn't exist and can't be measured. He also noted that infrequent price discovery doesn't make an asset class less risky, just less observably volatile, and warned that capital flowing into an asset class because it looks good in a model portfolio can itself inflate the returns that drew the capital in.
Discerene Selects Its Investors as Deliberately as Its Companies
The firm has turned down more capital than it has accepted over its history, screening for investors who share its definition of "long term" (measured in decades, not years) and “risk” (permanent capital impairment, not volatility), walking away even after lengthy due-diligence processes when it judges the partnership isn't a genuine philosophical fit.
Diversity of Background as an Underwriting Advantage
Discerene's ten-person investment team spans seven nationalities and nine languages, along with varied educational, professional, and socioeconomic backgrounds. Tan described how teammates with different lived experience and training often reach different conclusions when analyzing the same company, and that surfacing the assumptions behind that disagreement, rather than smoothing it over, is where better underwriting comes from.
Giving Follows the Same First-Principles Logic as Investing
The Discerene Scholars Program funds students from underserved communities in less developed countries to attend university, a group Tan said the firm's philanthropic capital reaches with the greatest effect. He connected the program to his own background, growing up in Malacca, Malaysia, and to the Jardine Foundation scholarship that funded his own studies at Oxford. He recalled that the first flight he ever took was to a scholarship interview in Hong Kong, while the second was to Oxford itself.
Core Takeaways
- Intrinsic value is treated as an objective, if unobservable, fact; the discipline lies in approximating it without letting the prevailing consensus shape the estimate.
- A moat is a specific claim about durable barriers to entry, not a synonym for high margins, growth, or market share.
- Clock speed, or the pace at which a business changes, is a separate axis from moat strength; conflating the two can become a recurring source of error.
- An investment thesis must be falsifiable and is only ever provisionally true.
- Private-equity-like fund structures, including capital calls and no terminal fund life, enable genuinely long holding periods and IRR-focused thinking.
- Mark-to-market pricing, more than the fundamentals of the underlying business, is identified as the primary source of investor impatience.
- Correlation-based cases for new asset classes often rest on benchmarks that do not exist or cannot be reliably measured.
- Discerene selects its investors as rigorously as it selects its investments, prioritizing philosophical alignment over available capital.
- Diversity of background on the investment team improves underwriting by surfacing different assumptions.
