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1993, in a lecture held by Buffett at Columbia University, Li Lu was listed.
The financial market in the 1990s was a bull market, and hedge funds were slowly rising.
With doubts about China's market economy reform, Li Lu did not believe that China had a so-called financial market, but it was Buffett who changed Li Lu's view.
Inspired by Buffett, Li Lu began to invest in the stock market for the advance payment given by the publisher for writing books.
As a firm value investor, Li Lu is one of the three most successful investments in his life as Charlie Munger , and has also been widely rumored by the outside world as China's "Buffett".
Li Lu's popularity is not unrelated to the success of investing in BYD.
As early as 2002, Li Lu bought BYD. He has a very in-depth research on BYD. The company's lithium battery and new energy vehicle-related businesses are perfectly in line with the development of electronic technology and the automotive industry, which also brings great returns to Li Lu.
Li Lu first introduced BYD to Munger. Munger admitted that BYD's valuation is difficult to see clearly. So, in 2008, Munger asked Sokol, chairman of Sino-US Energy Holdings, to China to investigate BYD for Berkshire. After Sokol returned to the United States due diversion, he and Munger persuaded Buffett to increase his investment in BYD.
Buffett invested in BYD in 2008, when the purchase cost was around HK$8. Based on the Hong Kong stock market of RMB 251.8, the profit has exceeded 30 times, achieving 30 times in 13 years.
As a practitioner of value investment, Li Lu bought the company's time dimension based on a 5- or even 10-year dimension.
Li Lu once said that he personally observed that what he could prove useful statistical data is only one investment concept, investment method, and investor group that can truly bring excellent long-term returns to investors reliably and safely over a long period of time, which is value investment.
Like most successful people, Li Lu also experienced the darkest moments of his life before becoming famous.
When Li Lu was only 9 months old, his father was sent to a coal mine for "re-education from poor and lower-middle peasants", while his mother was sent to a labor camp.
Before leaving, Li Lu's parents had to entrust their son to another family, and this foster care career lasted for about ten years. In the first few years, Li Lu went between several families, and finally, he was sent to the home of an illiterate miner in his hometown of Tangshan. It was here that he established a deep relationship with the miner's family.
This also taught Li Lu the skills to survive under harsh conditions. After
10, he reunited with his parents and two brothers. However, good fortune depends on the misfortune. Just as Li Lu's family and countless families were immersed in the atmosphere of reunion, a horrific earthquake occurred in his hometown of Tangshan, killing about 240,000 people, and the miners' family who raised him were among them.
Li Lu was immersed in grief. Although his family survived the earthquake, most of the people he knew left. In the face of the ruthless natural disaster, Li Lu's life lost its fun and lost its direction to move forward. He hangs among the gangsters on the street all day long, enjoying fighting.
It was Li Lu's grandmother who changed all this.
Li Lu's grandmother encouraged him to start studying hard and shine the Li family for the lintel. Under the earnest guidance of my grandmother, Li Lu studied very hard and finally got admitted to the Nanjing University physics major.
1989, Li Lu, who had already realized the various aspects of society, came to France and delivered a speech at Columbia University in the United States at the end of the same year, sharing his extraordinary life journey.
Although his English is not outstanding, he was still welcomed like a hero there. People were very interested in his experience, and he even received a prepayment at the time to ask him to write about his experience.
At Columbia University, Li Lu's academic performance was outstanding. In addition to receiving a scholarship, he also became one of the first students in the school to receive three degrees at the same time (Masters in Economics, Law and Business).
At the end of 1997, Li Lu founded Himalaya Capital and served as the founder and chairman of Himalaya Capital Management Company.
In recent years, Li Lu has been committed to the practice of value investment theory in China. In 2015 and 2019, he delivered famous speeches "Outlook of Value Investment in China" and "Unification of Knowledge and Action in Value Investment" at the Guanghua School of Management of Peking University, which are very popular in the financial circle.
In a media interview, Munger expressed his appreciation for Li Lu's ability without hesitation, and even described Li Lu's talent as "not an ordinary person". He also said that he is China's "Buffett" and handed over the full rights of the Munger family assets to Li Lu for management.
Munger said that this can greatly simplify life because there are very few people who are better than Li Lu. I just need to sit quietly and wait, and this takes some time to sit quietly and wait - this seemingly inaction practice is full of wisdom. In contrast, many people are too active.
As the founder of Himalaya Capital, asset manager of the Charlie Munger family and the third generation representative of value investment ideas, Li Lu has in-depth thinking and clear expressions about almost every investment issue. He is a person who attaches great importance to "knowledge honesty" and has a strong disgust for the simple thinking.
In March 2013, Li Lu was interviewed by Columbia University School of Business on value investment, the journal Graham and Dodd. In this interview, Li Lu talked about the great significance of "being yourself" and maintaining "knowledge honesty" to investment.
As he said, the market is a mechanism to discover human weaknesses, especially when the financial crisis comes. Only by being completely honest with knowledge can we survive, develop and grow in the market.
Li Lu believes that a very important part of investing in games is to be yourself, because there are more or less some elements of "zero-sum game" in investment, so you must find a way to match your personality in this process and gain an advantage through long-term efforts.
When you buy, someone must be selling it; vice versa. One of the two parties must have made the wrong decision, and you must be sure that you know more than your opponent and make more accurate predictions. This is a highly competitive game, and you will meet many people who are both smart and hardworking.
Investing is actually a process of discovering oneself, who am I, what I am interested in, what I am good at, what I like to do, and then continuously strengthen and amplify these advantages until I surpass others and gain considerable advantages.
Charlie Munger often said: "Unless I can refute those who are the smartest who hold the opposite view of me, I dare not claim to have a point of view."
Investing requires honesty of knowledge, you need what you know, and more importantly, what you don't know. If your understanding of the management team is not a card in your hand, it should not be taken into consideration.
Over the years, Li Lu has also gradually expanded his horizons and defined his circle of competence based on his own interests. Therefore, he chose a field that is more familiar to China, Asia and the United States.
When Li Lu first started investing, he was looking for cheap securities. Because at that time there were no other choices, no experience, and no desire to lose money, what should I do? Only buy the cheapest stocks. But over time, if you find that you are interested in stocks and are also interested in the business itself, you will naturally study the business.
Next you start to learn and study different types of businesses. You will learn about the genes of business, how they evolve, and why they are so powerful. Over time, you will turn to looking for quality companies with good prices.
Regarding the timing of selling stocks, Li Lu shared his own opinion:
1. If you make a mistake, then take action as soon as possible, even if it is a correct mistake. So what is the right mistake? Investing is a game of probability. Let's assume that the situation is that you are 90% sure, but there are 10% other possibilities, and the result is that 10% happens. This is the right mistake, and you should sell it at this time. Of course, it is also possible that your thinking and analysis are completely wrong. You think you have a 90% chance of winning, but in fact, the opposite is true. Once you realize that this is the case, you should sell it immediately. It is best if you don’t have much loss at this time, but even if you have already lost it, it doesn’t matter because you have to sell it.
2. The stock's valuation suddenly fluctuated to another extreme. If the valuation suddenly reaches a crazy level, I will also consider selling it. I'm not going to sell a slightly overvalued stock. If your judgment is correct and you have held a company's stock for a considerable period of time, you have accumulated a large portion of the non-cashed returns. A large part of these gains are like interest-free loans legally obtained from the government, so if you sell in this case, you cancel the leverage (the government provides you with) and then draw out a portion of the capital, then your return on equity will drop slightly. (This is because of capital appreciation tax.)
3. You found a better opportunity. After all, portfolios are opportunity costs, I mentioned them before. As an investment manager, your job is to continuously improve your portfolio. You start with a very high standard and continue to raise this standard. The way to achieve this goal is to constantly discover better investment opportunities and continuously optimize opportunity costs.
Li Lu had two years of shorting experience, but later this decision became one of the biggest mistakes he made.
In the process of short selling, even if you are 100% correct, you may end up bankrupting yourself. This is what Li Lu dislikes the most.
The three characteristics of shorting determine that it will be a very tragic business:
1. If you go long, your downward space is 100%, while your upward space is unlimited. If you short, your room for upwards is only 100%, while your room for downwards is unlimited. I don't like this arithmetic very much.
2. Those best short selling opportunities often have elements of fake things in it, and fake things may exist for a long time. Because shorting must be borrowed (stock), which is enough to drag you down. That's why I say you can go bankrupt even if you are 100% correct. And usually you are bankrupt before you make sure you are right!
3. It will disrupt your thinking. The idea of shorting will firmly occupy your brain and distract you from focusing on long investments.
In the past 200 to 300 years, since the beginning of the modern technology era, the human economy has generally been growing compound interest, so the economic development trend is naturally more conducive to going long rather than short.
Li Lu is very optimistic about China.
He believes that China is on the historical road of developing a modern economy, and the road ahead is still long, but it has also gone very far from the starting point. Given China's huge scale, it will inevitably have a huge impact on Asia and the world. China and the United States will form a Pacific Rim economic center, just like the Atlantic Rim economic center that once connected America and Europe.
contains many business opportunities, but it will not be a one-way street or smooth sailing. All kinds of situations can happen, and you are not 100% able to make money. But for those who can grasp this development, there are many opportunities waiting for them. The importance of China cannot be ignored.
Many investors are worried about China's real estate bubble, but Li Lu believes that this is just various extreme phenomena.
There are also some cities in China that are crowded, and all spaces are covered. There are also some cities that were once unknown, with high-rise buildings gathering in a blink of an eye, and more and more people are moving in. 20 years ago, Pudong, Shanghai was considered half a ghost town, but today you can't help but be amazed by its prosperous economy.
Manhattan is probably the place with the largest density of high-rise buildings in the world except Shanghai. But think about it, there are 10,000 high-rise buildings in Shanghai with more than 30 stories, several times the number of high-rise buildings in Manhattan. What's even more terrifying is that China is still developing. So China is a contradiction, and it will always be, and it will be in the future. Any theory you want to prove can find an argument in China.
But overall, the Chinese economy still has a long way to go. China knows that it is still its own era, but this does not mean that it has no problems, and it has many problems.
The United States also has a lot of problems. For 200 years, the United States has been like this and has many problems. If you know the history of the American Civil War, you will know that the United States lost 2% of its population in the Civil War at that time. But the United States was rebuilt at an astonishing pace. The United States then experienced two world wars.
Similarly, if you think Japan and Germany will decline after World War II, then you are very wrong.
For beginner investors, Li Lu also shared his insights:
Must learn from the best people, listen, study, and read. But the best way to understand investment is to practice, and there is no better way than this. The best way to practice is to choose a company and thoroughly study it with an investment mentality, although you may not really put money in it. But it is very valuable to thoroughly study a company from the perspective of assuming you own 100% of the company's equity.
As a beginner, you can choose a company that is easy to understand, which can be a very small company, such as a street convenience store, a restaurant, or a small listed company, it doesn’t matter.
Try to understand a company and understand how it works. How it makes profits, how it organizes its financial structure, how management makes decisions, what are the similarities and differences compared with competitors in the same industry, how to adjust itself according to the overall environment, how to invest in surplus cash, how to raise funds, etc.
If you own 100% of the equity of a company, even if you are not an operator, you will do your best to understand all aspects of the company to protect your investment. In this way, you will know how to invest well. Only in this way can you truly understand business and investment.
Buffett often said that if you want to become a good investor, you must first become a good businessman; if you want to become a good businessman, you must also become a good investor to allocate your capital.
Start by choosing a company in your own circle of competence and thoroughly studying it. This is a very good starting point for beginners. If you can start from this foundation, you are on the right path to becoming a good securities analyst.
Review of Li Lu's investment career, his first Chinese book, Civilization, Modernization, Value Investment and China, expounds his understanding and practice of value investment, and understands China's economic development in the past 40 years from the perspective of modernization, predicts China's development potential in the next few decades, and also includes views on the current situation in China and the United States.
Here share some suggestions for investors.
1. In the short term, the market is a voting machine, and in the long term it is a weighing machine. How to value in the short term has little impact on value investors. For them, short-term is more of an opportunity. If you pay special attention to short-term performance, then you are obviously not a value investor. As a value investor, the existence of the market serves you, not guides you what is right.
2. You need to invest a lot of time and energy to become an academic researcher, rather than a so-called professional investor. To cultivate yourself into an academic researcher, detective, or even a reporter, you must have an insatiable curiosity to explore the principles of the operation of all things.
3. Start with simple things, truly understand a very simple company, start with a small and simple business, and follow your own interests to study increasingly complex companies. At this time, knowledge will be built bit by bit, and honestly established.
4. Fish in places with fish and invest in places with many opportunities. China's opportunities are all-round opportunities, and the key is to seize the opportunities you understand. It does not depend on how much you understand, nor does it depend on how many opportunities there are in total. The key is to seize your own opportunities within the scope of understanding. This is the most important thing for investors.
5. Human nature is similar, and what other places need is also needed by Chinese people, but our economic level may not have reached the same level. Compared with the lack of our domestic demand in developed countries, it is definitely the relatively certain direction of our long-term growth.
6. The management has different influences at different stages. In the early stage of an enterprise, management is very important, and during the transformation of an enterprise, management is also very important, but under normal circumstances, the logic of the business itself is far greater than that of the management. So it depends on the specific state of the company you invest in.
Many Chinese companies are generally in the early stage, and the Chinese economy itself is undergoing huge changes, so these companies and industries will also undergo great changes. Therefore, in China or other developing countries, the role of management is usually much more important than in developed countries and relatively stable economies.
7. Have enough confidence in your own culture. Chinese culture is very suitable for a modern market economy. The principle of using morality as the foundation for self-cultivation in Chinese classical culture will only make your business better and faster. So it depends on whether you are pursuing short-term success or sustainable success.
8. The definition of sustainable success is very simple. If you tell every detail of your success story to everyone, everyone thinks you deserve this success. If everyone thinks you are taking advantage of the situation and feels uneasy, this is not a sustainable success. The criterion for judgment is whether a win-win situation is achieved.
9. The primary feature of value investors is that they don’t mind being a minority, but instead feel very comfortable because they are a minority.
You should have a natural feeling that your judgment on things is not affected by others' opinions, but is based purely on your logic and evidence.
10. A real value investor will clearly tell you that there is no way to predict the cycle, and he will not predict it. Once you enter the cycle prediction, you will find that there are short cycles, medium cycles, and long cycles, from a few years cycles to a few hours cycles. When you start to enter this kind of thinking, you are no longer a value investor.
11. Among the most successful cases of my investment, the source of knowledge is not the annual report, but some other aspects of knowledge, which allows me to make judgments on some other issues that are different from the market and have some real and unique insights. But you don’t know how knowledge is connected with each other in advance, so people should be honest with themselves and do what they like. Because everyone's circle of ability must be different, and everyone's interests are also different. You must move forward honestly according to your own interests.
12. The existence of the market is to specifically discover the weaknesses of human nature. When you estimate your abilities too high and then get very lucky in the market, such as suddenly winning, this is the most terrible thing. You will easily enter a vicious cycle, and in the end this market will definitely defeat you.The market is very cruel and very real.
13. If there is something that is positively related to investment results, it is the amount of company annual reports you read, which may indeed have a lot of positive relationship with investment knowledge. The more companies you know, the more history you know, the more industries you know, the more profound analysis of them. Especially if you really think about the company from the perspective of the owner in the right way, reading in this aspect will actually have a lot of positive relationship with your future judgment in investment, sensitivity to opportunities and grasp. If you use the wrong method, such as studying K-lines, no matter how much you study, it is useless.
14. There are many research methods, and the seller's research report can also be read, because there is some data, and you will also make more objective answers. But you have to analyze carefully and rationally, with a critical perspective, and use a more objective way to judge which facts can be learned and which conclusions can be drawn. Be sure to use logic to promote it, rather than use imagination and your hope to graft it in the middle.
15. My success may have come from no more than 10 ideas in the past 26 years, so you really don't need that many ideas.
16. It is a long-term thing to know a company, not just a few days, weeks, or months. It is often based on years. Some even take more than 10 years of research before you can have a say. So if you really study it thoroughly, you will dare to bet.
17. If you really think of yourself as the owner of the company, you will not use the so-called earnings per share concept. You must always train yourself not to think about the concept of "per share" and think about what the market value is when you are the owner of the company.
18. All industries will have excellent investment targets. As long as this industry exists for a long time, many of them will appear. Even if the industry itself is not growing enough, it will maintain growth at a certain rate because we cannot do without it.
If the competitive landscape of this industry has formed a high degree of integration and is further synchronously integrated, then these companies will also become very excellent investment targets.
19. Value investment itself does not necessarily require investing in a specific industry, such as consumption, finance or technology, and there is no such distinction. Value investment is a way of thinking, a set of behavioral codes, and a set of prediction methods, and has nothing to do with what kind of industry to invest in.
20. Most people do not believe in compound interest because compound interest is not common in life. For example, the most likely compound interest is experience and wisdom, but according to the learning methods of most people, their knowledge cannot be accumulated and they are aging, so they cannot even see the most basic compound interest.
21. The security margin is very important. When considering various things that are even very small, your investment can still be securely guaranteed. This is a relatively reliable investment. Including plagues, major economic crises, and even wars, they should be within your consideration.
22. The amount of investment should be small, and you should be able to grasp the big one when investing. When the amount is large and the number is small, you should place more bets.
23. Even if you are particularly confident, you cannot do 100% correct. All you get is a high chance. But if you always invest at the highest chance, the results accumulated over the long term will definitely be very good.
24. Investing is a probability game. Let's assume that the situation is that you are 90% sure, but there are 10% other possibilities, and the result is that 10% happens. This is the right mistake, and you should sell it at this time.
25. If a company itself has a strong moat, has very excellent sustainable profitability, and is in an advantageous position in competition, then generally speaking, its good aspects will protect itself. You don’t need to think so clearly, and you don’t need to make any preparations.So it is really a preparation for the future, to prepare for bad things. Good things don’t need to be prepared, just accept them.
26. If you want to truly understand value investment, you must read several books. The first book is Graham's "Smart Investor". The second is Buffett's biography, such as "Buffett's Biography: The Growth of an American Capitalist" written by Roger Lowenstein. To study Baman, you should also read " Poor Charlie's Book ". " Securities Analysis " is also a must-read classic. If you are relatively close to us, and understand some of the experiences of growth companies, you can read Philip Fisher's "How to Choose Growth Stocks". Michael Porter's "Competitive Advantage" lists the main trends of competition more clearly and can be used as a basic introduction to the study of long-term competitive advantages.
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