How Source Code Capital's Zhang Xun Went From "Hunter" to "Farmer" | Source Code Insights

Editor's Note: First launched in 2017, "Source Code Capital Insights" has been our window into tracking industrial pulse and delivering investment thinking. Good investing is, in itself, an "extreme post-mortem" of real-world delivery.

Over the past period, the world has experienced violent turbulence — from "incremental competition" to "evolution in deep waters." Beneath the noise, we care less about "what happened" than about "why it happened," "what the underlying logic is," and "what the future holds."

As 2026 begins, we are relaunching "Source Code Capital Insights" — from the perspective of investors quietly working on the front lines, presenting Source Code's "non-consensus" observations on industries, cold-eyed validation of investment hypotheses, re-anchoring of industry coordinates, and the business values and entrepreneurial spirit we advocate and uphold.

Today's piece comes from Xun Zhang, Executive Director at Source Code Capital, who candidly shares his gains and reflections from ten years in the industry — encompassing both insights into business models and dissections of investor psychology. This is not a standardized industry report, but a personal dossier on "how business intuition gets tamed by logic."

We have always believed that outstanding investors must first be profound thinkers. Navigating deep waters, what is scarcest is not information, but the "cognitive net value" distilled from vast amounts of it.

The full text follows:

Xun Zhang, Executive Director, Source Code Capital

• Joined Source Code Capital in 2022, focusing on hard tech, semiconductors, and related fields; previously worked at Loyal Valley Capital and Cathay Capital; holds a bachelor's and master's degree in engineering from Tongji University.
• Led and participated in investments including ESWIN Material (688783), Gpixel, Suzhou Xihang Semiconductor Technology Co., Ltd., Suanmiao Technology, YxinData, Longbridge Securities, among others.
• Email: zhangxun@sourcecodecap.com

Looking back at my decade-long investment career, I'd say my first eight years were those of a decent "hunter" — chasing opportunities, moving fast in and out. In the past two years, I've gradually evolved into a "farmer," dedicated to patient cultivation and waiting, firmly believing that harvests after such tending will mostly turn out fine.

These two years have, in a sense, been when my investment capabilities improved the fastest. The core realization was that 90% of an investment is determined the moment you make it. Control that instant of deploying capital well, control the various risks, and upside returns will naturally follow. As the old saying goes: take care of the downside, and upside will take care of itself.

Over the past two years, the most important lesson I've learned in investing is to pursue sufficient safety with minimum necessary speed — growth is necessary, but it must be the most stable speed possible under the premise of safety. "Fast is slow." In business operations, this is called "slow is fast." This restraint on speed is especially critical for highly leveraged industries (finance, asset management, real estate, etc.).

This applies not just to investing, but to life as well. The greatest joy in life lies in the process of reaching goals, not the outcome; happiness in life lies in the process of gradual improvement, not dramatic change; or rather, happiness stems from the rate of gradual improvement, not absolute levels. Therefore, one should stretch out the process of reaching goals as much as possible, rather than rushing for quick results.

01 How to Define a Good Business Model?

Having read Warren Buffett for many years, I only later understood his essence: put certainty before growth, and probability (odds of winning) far ahead of payoff (potential upside). This is precisely the opposite of what most individual and institutional investors do.

Without the courage to invest on the left side when no one else is interested, without the ability to do clear math when prices are transparent, without the long-term commitment to "fight the war" like a shareholder — it's hard to truly make big money. "The ones that trap you are the golden babies." You can only build sufficient position on the left side, and the more pessimistic the market, the more rigorous and demanding you are about a company, the better your investment decisions tend to be.

Continuously seeking, evaluating, and investing in "good and cheap" companies — low valuation, buying cheap — this is both margin of safety and a fundamental source of returns. This is roughly what Buffett means by being a "rational pessimist." Never relax the demand for "good" — good business model, management with both virtue and talent — and never relax the strict standard for "cheap." In the choice between short-term temptation and long-term value, one must firmly choose the long term.

How to define a "good business model"? I once saw a definition that put it well: earns a lot, earns easily, earns for a long time.

Don't rush to invest when a field hasn't even released 1% of its potential; don't go all-in when a company hasn't yet captured 5% market share. Because these moments are often precisely when the most valuable information emerges.

Among these, "unused pricing power" is the manifestation of a company's innate competitive advantage — possessing the ability to raise prices (whether product prices, commission rates, or monetization rates) yet exercising restraint, is itself the priceless treasure of monopoly, high switching costs, or brand premium.

The single most important metric for measuring "good" is ROIC (or ROCE) — return on invested capital is the holy grail for screening companies. Compared to ROE, it strips out tax effects and capital structure, naturally facing toward the future. High and sustainable ROIC itself encompasses competitive advantage, excellent team, healthy balance sheet, and potential management capital allocation capability. A company's theoretical long-term returns naturally converge toward ROE, but ultimately converge toward ROIC.

I believe an effective learning method is to focus, and not fear repetition. The same article, the same book — you can read them multiple times. If you don't understand it the first time, reading it two or three times will yield some understanding.

02 Don't Carry a Hammer and See Everything as a Nail

Zheng Huang has a "credit card logic" for judging people that is very apt: a person's credibility is like a credit limit — there's an initial limit at the start, but accumulating it is extremely difficult, requiring countless fulfillments; yet losing credibility is easy, a single default can zero out the limit, and recovery is hard.

Investing is like this, and so is evaluating companies. Investors should also only pay attention to their "internal scorecard." What many investors call "reflection" is merely using personal experience to maximize the "fit" of their investment system. Moreover, regardless of how many bull or bear markets they've experienced, what they fit to is always just the past two or three years. Some people are keen to "revise" their investment system every two or three years to make it more consistent with "reality" — but this is merely consistent with their "remembered reality," tightly coupled with recent "rewards/punishments."

Most people believe whatever the market is rising on, and believe whatever it's falling on. The daily work of the vast majority of finance professionals is "explaining the market." When markets rise, entrepreneurs have halos and can do no wrong; when markets fall, entrepreneurs become targets of public scorn, with problems everywhere... History has repeatedly proven that those who rise and fall with the market rarely end well.

Don't rush to conclusion. Don't too easily say "at bottom, it's like this" or "it must be like this." When we reach conclusions, we must always maintain an open mindset, clearly knowing that you are not Warren Buffett, not Yongping Duan, not Don Valentine — first assume that you might be wrong.

I regularly review all my investment records. The investments with the biggest losses are filled with my own weaknesses. One major problem is the "illusion of competition" — always thinking I'm capable, always thinking I'm smart, thinking I see accurately, thinking I'm the chosen one. We must believe that we are ordinary in statistical probability, treating investments with bear-market-like prudence at every moment, in order to stay at the table long-term.

"Wanting to prove oneself" is one of the important reasons for losing money in investing, while "pursuing maximum returns" is the root cause of permanent elimination from the game. — Investors should remind themselves of this constantly.

The "way of heaven" in investing is cruel. It is not "taking from the abundant to give to the lacking," but rather "taking from the lacking to give to the abundant." The Matthew Effect plays out vividly: the smaller the capital, the more urgently it wants to make money quickly; the larger the existing capital, the more composedly it can gain more. This is the cruelty of the game, which is why there's that profound observation: ordinary people often don't have ordinary minds, and those who do have ordinary minds are likely no longer ordinary people.

Ultimately, competition between companies, individuals, and everything else is competition of correct ideas and values. I very much agree with Simons' statement: "What is most important is being guided by beauty." The height a person can reach is ultimately determined by their aesthetics and values.

As Microsoft CEO Satya Nadella said: "From ancient Greece to modern Silicon Valley, there is only one thing that causes the decline of civilizations, nations, and companies — and that is arrogance." Zeng Guofan said something similar: "Throughout history, talented people have all been ruined by the character 'arrogance.'" We must repeatedly remind ourselves that high levels of abstraction, refinement, and analogy are likely to be wrong — we must guard against both information decay and the intellectual arrogance of "carrying a hammer and seeing everything as a nail."

03 Investing Ultimately Must Respect Simplicity and Common Sense

All successful investors share great commonalities; every declining investment institution has its own different reasons for decline. The simplest principles, laws, and truths keep this world moving forward endlessly.

Investing must ultimately return to business essence, adhering to operational common sense. Believe that: simple will defeat complex, cheap will defeat expensive, focused will defeat diversified, efficient will defeat inefficient. "Value creation," "corporate culture," "margin of safety," "governance structure," "entrepreneurial spirit," "independent thinking," "continuous learning," "humility"... these are the shared traits of successful investors.

Respecting the power of simplicity and common sense is extremely important. Common sense is obvious and easy to understand. When you make a judgment about something, you need to understand the context and facts; after understanding, what you need is not wisdom, but the courage to use reason and common sense in the face of facts. Yet we are often blinded by biases formed through personal growth and learning, and by personal interest demands, leading to neglect of common sense.

Always insist on facts as the basis, not personal subjective judgment. Always challenge assumptions, always challenge things that seem self-evident on the surface, always think in reverse. Humans are intensely social animals — even if the assumption comes from high authority, even if it is everyone's consensus.

Entrepreneurs — constantly innovating, continuously refining products and services, day after day of lean operations — this is called entrepreneurial spirit. And among investors, those I've observed who truly do well — Warren Buffett, Charlie Munger, Yongping Duan, and others — are also constantly pondering and thinking, constantly focusing, refining and improving, making a little progress every day; this too could be called investor spirit. Investors need to repeatedly remind themselves that high levels of abstraction and refinement are likely to be wrong — one, because this refinement process decays a great deal of useful information and data; two, because it also contains the intellectual arrogance of "carrying a hammer, seeing nails everywhere."

Similarly, curiosity is also particularly important in investing. Curiosity can liberate our thinking, rather than trapping us in complacency. External "success" is sometimes the enemy of our understanding of the world; we need constant self-examination to combat the biases it brings. Curiosity is like an unexpected invitation: looking at one more company, reading one more page, browsing one more article — every act of curiosity may bring unexpected good fortune.

An investor I deeply respect taught me that major opportunities in investing often come from the emergence of new demands, which requires us to constantly learn, but our capacity for viewpoints is limited. Curiosity is like flowing water, constantly moving, providing metabolism, allowing us to continue moving forward.

Additionally, having a historical perspective — having seen enough cases, spanning long enough time — may also be a crucial dimension in investing. And reading is precisely the fastest path to acquiring a historical perspective — using a few hours to exchange for the distilled wisdom of history's most brilliant minds, accumulated over decades.

Finally, I've specially excerpted a passage from Warren Buffett as my closing. These few sentences nearly exhaust the entire truth of investing, and are worth careful contemplation:

"The first rule of investing is: don't lose money. The second rule of investing is: don't forget the first rule. That's the whole of investing. I mean, if you buy things for far below what they're worth, and you buy a group of things, you basically don't lose money. Investing is more a temperamental quality than an intellectual quality. You don't need a lot of IQ in this business. I mean, you need enough IQ to get from here to downtown Omaha, but you don't have to be able to play three-dimensional chess or be in the championship bridge or anything of the sort. You need a stable character, you need a temperament that doesn't derive great pleasure from being with the crowd or against the crowd, because this is not a business that operates by taking polls, it's a business that operates by thinking. Ben Graham would say that you're neither right nor wrong because a thousand people agree with you. And you're neither right nor wrong because a thousand people disagree with you. You're right because your facts and reasoning are right."