Chapter 4: 1999–2001 — The Age of Black Gold (Excerpt)
Private Equity Figure No. 8
Li Biao (Deceased): A Polymath Operator Who Created His Own Trading System
Position: Former Partner, Qingdao Muzi Venture Capital Center
Year of Birth: Around 1970
Background: Operator (market maker)
Hometown: Guangzhou
Style: A self-developed neutral trading strategy, abbreviated as the "Chan School." Focused on market structure, market energy, and stock price trajectory to construct a trading system, presented in geometric language and unconventional terminology, such as "a virgin who hasn't been taken as a catamite is imperfect," and other distinctive expressions.
Performance: Not publicly disclosed, but his predictions and operations on market moves large and small were extraordinarily precise. He accurately predicted the 2008 bear market. In the Yi'an Technology campaign alone, he drove the stock from just over 30 yuan to 126 yuan — at least a 300% gain.
Career: Graduated from Guangzhou Guangya High School in 1988. From 1988 to 1992, studied in the Mathematics Department at Sun Yat-sen University, Guangzhou. Subsequently worked in the securities industry. From 1998, he successfully operated Yi'an Technology, creating China's first stock to exceed 100 yuan per share. After a four-year hiatus, he re-entered the stock market in June 2005. On June 7, 2006, he opened a blog on Sina, self-titled "World's No. 1 Blog," under the ID "Chan Zhong Shuo Chan," leaving behind 1,134 brilliant articles. During this period, Li Biao began running underground private funds, with capital measured in units of 1 billion yuan. In 2007, he founded Qingdao Muzi Venture Capital Center, laying the groundwork for private equity operations. On October 19, 2008, he departed this world due to nasopharyngeal cancer that had spread to his lymphatic system.
On October 31, 2008, Li Biao — this arrogant and extraordinary figure of the capital markets — took his final bow on the capital stage far too early, dying of nasopharyngeal cancer at not yet 40 years of age.
In Li Biao's well-known blog "Chan Zhong Shuo Chan," there is this deeply meaningful passage: "This ID writes all this without the slightest concealment, as a warning to everyone: life can be burned and squandered, but you must bear the karmic consequences. No one is exempt — not even someone like this ID. This is a warning, so that those who come after will have some sense of awe."
This blog passage seems to reflect the "karma" he came to comprehend after his ruthless manipulation of Yi'an Technology.
Regrettably, Li Biao is the only figure among all the private equity personalities in this book whom the author was unable to contact directly. Additionally, Li Biao is the only one separated from us by the divide of death. Yet when you come to understand him deeply, you cannot help but lament that Heaven envied his genius.
Currently, the only publicly available photo of Li Biao was taken at the inauguration ceremony of Pingxiang Innovation Capital Management Co., Ltd. in November 2007. In the photo, Li Biao has a square face, a crew cut, and glasses perched on his nose. Though smiling, his gaze still concentrates a sharp, killing intensity, projecting extreme confidence bordering on arrogance. However, the photo already reveals a visible lump on the left side of his neck near the nape.
Li Biao may have been one of the most skilled professional operators in history. Not only could he flawlessly apply a trading system to stock operations, he also created a complete trading system theory. As is widely known, a trading system is the foundation for market-neutral strategy traders. A market-neutral strategy requires the operator to perform complex calculations to ensure equal risk exposure between long and short positions, trading in a manner that accumulates small wins with higher probability.
Creating a complete trading system was only one facet of Li Biao's many operational skills. His trend judgment was also extraordinarily precise. Though high accuracy in trend prediction could be attributed to a sufficiently powerful trading system — and since most trading systems operate at the technical level — the greater likelihood for Li Biao was that his grasp of macroeconomics was also superb. He mentioned a detail in his blog: before the 2006 National Day holiday, he dined with several major Hong Kong fund managers, and after he'd "schooled" them, they went back chastened. The reason: "This ID discussed with them the major trends in the international economy, the financial outlook for the Greater China region, and the political-economic situation on the mainland."
Additionally, Li Biao's blog displayed his stock pool, including Zhongliang Tunhe, Sanjiu Medical, China Animal Husbandry, Shuijingfang, Shandong University Huate, Dazhong Public Utilities, Thunis, Shandong Haihua, Aerospace Power, Chengxing Shares, and 34 other stocks. Nearly all of these stocks surged powerfully after the market improved in late 2008.
Particularly noteworthy is that Li Biao had miraculously predicted years in advance that the US subprime crisis would trigger a global financial crisis in the second half of 2007, on a scale comparable to the 1929 world financial crisis. In 2005, he miraculously predicted the stock market bottom and that a magnificent bull market was imminent. In 2007, he miraculously predicted the major market top, even specifying the exact point — 6124.04.
Li Biao's "capabilities" clearly extended far beyond this. His blog "Chan Zhong Shuo Chan" covered an extraordinarily wide range — the 1,134 blog posts encompassed poetry and verse, music and art, literature, history and philosophy, vernacular essays, and many other fields — truly vast and profound. Li Biao once stated: "Three people who attain my Dao would be sufficient."
According to an old acquaintance, Li Biao had a period (around 1999) when he was operating from a VIP room at a brokerage's Guangzhou Tianhe office. His market intuition was excellent and his reactions fast. In this acquaintance's impression, Li Biao was bald-headed, with a killer's intensity behind his glasses, somewhat short-tempered, and very brusque in speech. Once during a phone call mid-trading, someone apparently spilled a cup of water accidentally, and he burst into profanity over the phone — very embarrassing.
Industry circles say that one year-end, Yang Baiwang (Yang Huaiding) came to Guangzhou. At the time, Yi'an Technology was around 40 yuan. Over dinner, Yang Huaiding declared that Yi'an Technology was about to crash and was very dangerous. When a friend later told Li Biao this, Li Biao sneered: "How many shares of Yi'an Technology can Yang Baiwang even afford to buy?"
Li Biao once analyzed his own personality: "This ID's mother is from Xiguan in Guangzhou — a true, native Cantonese. Because of relatives on my mother's side all being in Guangzhou, the north-south combination probably made this ID a bit unusual from childhood. Moreover, from a young age, this ID lived for at least N years in places as far as Hainan, the far Northwest, and of course Guangzhou and Beijing. This probably had quite an influence on this ID's character."
Li Biao seemed to be a born polymath. He was knowledgeable about current affairs, politics, entertainment, sports, human nature, poetry, physics, mathematics, history, and traditional Chinese medicine — virtually omniscient. And his mastery of each subject surpassed the level that ordinary people could achieve. This is nothing short of astonishing.
His classmates described Li Biao as "a genius, a prodigy, a master, and a warrior and fighter for life."
According to Guangya High School classmates, Li Biao was exceptionally gifted in mathematics. In his second year of junior high, he competed in a senior-high-level math competition and won second prize. By the time he entered high school, he was already reading Klein's Mathematical Thought from Ancient to Modern Times.
Li Biao said mathematics was "the state of mind at the end of the water's path, sitting and watching clouds arise." He wrote in his blog: "This ID's theory is fundamentally constructed from the perspective of modern physics, building its own energy-dynamics structure. Here, everything is determined by geometric structure, and all energy-dynamics forms become geometricized. Therefore, one must undergo this fundamental shift in thinking to achieve true understanding. Otherwise, stuck in the feeble thinking of the Newtonian era, one falls into the trap of mechanistic thought."
He was also passionate about music. During his university years, he had already amassed over 300 legitimate music CDs, each costing no less than 100 yuan. In high school, he was already composing his own music. He wrote a dedicated blog post explaining singing techniques in detail. He believed: "Life is short. If you have the human voice — this most exquisite of instruments — accompanying you through life's darkness and light, how beautiful that would be."
When he was about to graduate from university, Li Biao sat for the graduate school entrance exam but arrived at the examination hall for the English paper only near the end of the exam. Had things gone differently, society might have gained one more university professor rather than a master who roamed the capital markets.
During university, Li Biao had already spent considerable time studying stocks. He had a stack of stock commentary manuscripts, written neatly on pale yellow paper in clear handwriting. These were all published in newspapers.
In high school, Li Biao was completely unconcerned about his appearance — a half-worn shirt, half-worn wrinkled trousers, and a broken palm-leaf fan in hand. Years later, a classmate spotted him downstairs from the CITIC building. He had a goatee and looked sharp and neat — nothing like his disheveled student days. At the time, he said he was trading stocks and providing analytical services for clients.
As a born polymath thoroughly versed in every corner of the market, many speculated that Li Biao may have penetrated the secrets of trend investing.
In recent years, Li Biao was very active online. His ID "Girl Who Loves Math" was once hugely famous on Tianya, nicknamed "Math Girl." Her writing was sharp-tongued, with eye-grabbing headlines, quickly turning the Tianya forums upside down.
Later, he opened a blog on Sina under the name "Chan Zhong Shuo Chan." The language style changed considerably — less abrasive than "Math Girl," but the writing still commanded attention.
In the final period of his life, aside from stock trading, he also threw himself into the venture capital business. Li Biao first founded Qingdao Muzi Venture Capital in August 2007, becoming Qingdao's first limited partnership enterprise, serving as chairman himself. Shortly after, Qingdao Muzi co-founded Fund Analysis and New Finance & Economics magazines. On November 14, 2007, Muzi Venture Capital and Shenzhen Innovation Investment Group jointly established Pingxiang Innovation Capital Venture Investment Co., Ltd.
On July 14, 2008, he wrote in a blog post: "Even in illness there are true old-fashioned friendships. This ID normally hates to trouble people, but there's one friend, now one of the most powerful figures in business — the chairman of one of China's largest companies in one of the hottest industries. Compared to this ID lying sick, he's riding high on spring winds. But this time, his true character really showed."
What tormented Li Biao most were two things: his mother's premature death, and the rift with his younger brother Li Bin. His mother died of cancer while Li Biao was in university. According to classmates, in the period before her death, Li Biao began practicing qigong to try to heal her. When Li Biao was operating Yi'an Technology, his brother Li Bin was dragged into the mess. The investment company Jinyi Investment, which was involved in the Yi'an Technology manipulation, was registered with Li Bin as legal representative. But Li Bin knew nothing about stocks and never appeared in person — the person actually in charge of operations was always Li Biao. The court had earlier disclosed this, referring to "Li Bin's elder brother, a certain Mr. Li." "Chan Zhong Shuo Chan" also frequently expressed feelings of guilt toward his brother in blog posts. His brother was never able to forgive Li Biao, and this unresolvable knot always tormented him from within.
He wrote in his blog: "In 2002, this ID suffered a severe blow — a billion times more severe than this one. This blow had nothing to do with finances or health. As a human being, without enduring such a blow, one probably wouldn't truly become a person. So the fact that this blow could strike this ID at least proves that this ID is still a person. And having endured such a blow, there is nothing left in this world that can strike this ID."
"Under this blow, this ID temporarily abandoned all external activities, including all economic activities. Every day I ate vegetarian food, burned incense, and chanted sutras. Over the course of a year, I read every Buddhist sutra I could find, word for word, reciting them over and over — not even sparing massive texts like the Avatamsaka Sutra. During this period, I was not completely oblivious to the world. The international economic environment at the time had become very pressing, and seeing our countrymen still pleasuring themselves with 'Made in China' and 'Created in China,' worldly concerns arose again. That's how the initial 'sneeze' began, which was eventually compiled by others into Currency Wars and the RMB Strategy and another actually more important collection that circulated online.
"From the end of 2003 through mid-2004, after the one-year period was up, I came out to deal with some old matters and wasn't active online. When I returned in mid-2004, I found my old posts had been collected and were circulating. On a childish impulse, the series of activities that most of you are probably quite familiar with followed. Later, starting in early 2005, economic activities resumed online, and the hustle continued until this illness struck."
The torment of illness brought Li Biao to profound realizations about life, but he felt deeply his own helplessness before his family.
This extraordinary genius thus experienced a life that could be burned and squandered. Before karma, there was no escape.
Li Biao's "Chan Theory" is truly vast and profound. As noted above, his operational style belongs to the technical school. In the secondary market world, his most famous innovation is the "limit-down washout accumulation method."
Li Biao once described in "Chan Zhong Shuo Chan" his process of operating a certain stock. From his description, it is clear the stock was Yi'an Technology.
"First, at a major resistance level, I held the line and absorbed all the shares from trapped sellers wanting out... Then I kept making false breakouts at that level... And through repeated false breakouts, every technical trader handed over their chips."
In October 1998, Yi'an Technology had been range-bound, constantly making false breakouts. Technically-minded retail investors who chased each breakout were repeatedly trapped. The stock rose one day and fell the next, moving like a drunken boxer, leaving investors baffled.
"At this point, basically all the money in the accounts had been spent... At the time, there was a type of intraday margin that required same-day settlement. Using the remaining funds, I borrowed this type of margin. Then that day I bought ferociously — by morning, all the cash plus margin was fully invested. In the afternoon, the position had to be closed. Repeated negotiations about whether closing could be avoided — the answer was no. With great apparent anguish, I began the closing operation. Like a waterfall, the price plunged. Everything bought in the morning was dumped at a loss. The price crashed through the previously held platform. After the close, rumors immediately spread everywhere about someone being trapped and facing margin calls. The next day, all the 'rat nests,' everyone who knew the inside story, stampeded for the exit, and the third day was the same."
On December 16, 1998, a sudden rumor emerged that Yi'an Technology's market maker had been forcibly liquidated due to excessive margin usage. The stock fell 4.88% that day, 7.56% the next, and hit the limit-down on the third day.
The devastatingly heavy selling made everyone believe the rumor was true — the market maker's capital chain had indeed snapped and positions were being forcibly closed. Nearly every investor regretted not having fled, but the stock was locked at limit-down with no chance to escape.
On the fourth day, the stock still opened sharply lower but broke the limit-down, and everyone rushed to escape. Despite massive selling, the price inexplicably stopped falling — interpreted as the market maker supporting the price to distribute remaining shares. "At that moment, from N remote locations far away, all the selling was being absorbed into an anonymous pocket. Everyone who'd escaped was congratulating themselves, because on the fourth day it still opened with a large gap down. Suddenly, powerful buying surged up like magma erupting from underground, sweeping clean every share offered. They had no opportunity left to buy. The next day, the same — as soon as the market opened, it instantly removed any buying opportunity, while those who hadn't escaped were still selling." So recalled "Chan Zhong Shuo Chan."
The consecutive breakdowns were universally interpreted as a market maker's final distribution, but "Chan Zhong Shuo Chan" did the opposite — using rumors and technical breakdowns to create panic while aggressively accumulating.
As he described, the following day Yi'an Technology inexplicably hit the limit-up, then four consecutive bullish days, before consolidating at a level slightly below the previous platform, unable to break through. Once again, investors were baffled.
On January 18, 1999, Yi'an Technology suddenly hit the limit-up, blasting through both previous platforms in less than 15 minutes. By then, entering its main upwave, no one dared chase it. Yi'an Technology simply never looked back.
Professional analysts observed from the daily time-sharing charts that the stock frequently climbed at a steady 45-degree angle, typically closing at or near the intraday high. This technique — using three consecutive limit-down drops to flush out the majority of shares, while the market maker reverse-operated the conventional limit-down distribution method to aggressively accumulate — was later dubbed the "limit-down washout method" and became widely known.
His trading theory also shone with the brilliance of market-neutral strategy concepts, such as "there are no market makers, only winners and losers." He also provided philosophical guidance, such as "some people are not suited to participate in the market." He would also intersperse vivid case studies, such as the "Anecdotes of Playing with Market Makers" series. No matter how you look at it, in practical analysis, the limit-down washout method remains the most unforgettable tactic.
Commentary: The "No Stock Without a Maker" Era Spawns the First Generation of Operators
"No party without a maker, no stock without a maker" — this was the most vivid portrait of the capital era. All the stories unfolded from the "May 19th" rally of 1999. It can be said that the "May 19th" rally holds an indelible place in China's capital markets.
This era staged too many tragicomedies of market makers — some stories far exceeded the limits of imagination. After 2001, the regulators adopted "surgery to the bone" on the stock market, and the ensuing bear market of over four years turned these once-glamorous market makers into end-of-the-road desperate figures. However, some survivors were always looking for an opportunity to make a comeback.
In the late 1990s, some listed companies entrusted their idle funds to underwriters for investment, and numerous advisory and consulting companies became private fund operators. Li Biao, Ding Fugen, and their ilk took this model to its extreme.
This group of endlessly creative market makers produced an equally formidable generation of operators. Both the spatial and temporal dimensions of the market gave operators an extraordinarily broad stage to perform on. Nearly all of China's most legendary operators stood on the historical stage during this period: the Zhongke Chuangye group's Lv Liang, Zhu Huanliang, Ding Fugen, Pang Bo; the Yi'an Technology group's Luo Cheng, Zheng Wei, Li Biao, Tang Fan, and Luo Zhongmin; the D'Long group's Tang Wanxin; the Yinguangxia group's CITIC Development (brokerage), and others. The operators forged in this storm became today's most skilled private fund managers. As for Li Biao, rumors held that when he later ran private funds, the capital under his management was at minimum 2 to 3 billion yuan.
Meanwhile, the market's other major player — public mutual funds — began moving toward standardization following the "Black Curtain of Funds" scandal. They subsequently became the main drivers of blue-chip stocks, a trend that also hastened the demise of market makers. In 2001, with the launch of China's first open-end fund, a new generation of fund managers stepped onto the stage, ushering in a golden age for fund managers.