Li Lu
Chinese-American investor and Charlie Munger's fund manager, known for value investing and being handpicked by Munger to manage his personal wealth
Li Lu
Overview
Li Lu is a Chinese-American investor who founded and manages an investment partnership. He is notably known for being selected by Charlie Munger to manage his personal wealth, with Munger stating that the probability of finding someone better than Li Lu is very small. Li Lu is a practitioner of value investing with a focus on understanding competitive dynamics and business durability.
Background
Li Lu came to the United States as a student and was inspired by hearing Warren Buffett speak. He subsequently pursued value investing and founded his investment firm, which has compounded capital at high rates over decades.
Investment Philosophy
Value Investing as a Natural Path
Li Lu describes value investing as a "正道" (right path) that he never strayed from:
"I never felt tempted by other methods. Some ways to make quick money or through insider information to make money from others have never had any attraction for me."
The Role of Luck
Li Lu emphasizes the role of luck in success:
"At least in my life, and in the lives of all successful people I know, luck has played a very significant role."
He advocates for maintaining a "half full" perspective when viewing the world—focusing on luck and good fortune rather than complaining.
Compounding as the Greatest Force
Li Lu emphasizes compound returns as the eighth wonder of the world:
"If you use the correct method to learn and think about business, your knowledge accumulation in 50-60 years can form a powerful compound return in your brain similar to financial compounding."
Understanding Business Value
Definition
The value of a business is the present value of all cash profits it will earn over its entire lifetime, discounted to today.
Key Challenge
The challenge in valuation is that our ability to predict the future is limited, and companies face constant changes from:
- Market changes — from shifting demand
- Competitive changes — the most critical factor
The Core Question
"The core question in investing is to understand the competitive landscape. Almost all profitable businesses attract competition. If a business earns good returns, competitors will be attracted."
Sources of Competitive Advantage
Sustainable competitive advantages can come from:
- Monopoly — if conditions persist
- Technology — leading edge in a particular phase
- Leadership — exceptional vision and execution
- Organizational Culture — deeply embedded behaviors
- Business Model — unique value creation approach
- Customer Characteristics — loyal customer base
Views on Globalization
Li Lu believes globalization cannot and will not be reversed because:
- Economic efficiency is highest in a single global market
- Every economy is deeply interconnected
- Technology advances fastest in integrated markets
- No country can afford to离开 global markets without reducing their own efficiency and competitiveness
Life Philosophy
The Importance of热爱 (Love/Passion)
"What drives life should be love, not fear... Real long-term motivation comes from热爱—love of self, love of life, love of others, love of family, love of your industry."
Curiosity and Continuous Learning
Drawing from Charlie Munger's example:
"My teacher and partner Charlie Munger, in two more months will be 97 years old. He remains curious about every change in the world."
Related Concepts
Source
Based on Li Lu's talk at Noah Wealth, November 2020.