Li Lu On 2021 Investing, Value, China & More - CBS Interview Summary

good day fellow investors i recently really enjoyed the one and a half hour interview that bruce greenwald value investor professor from colombia did with lee lu if you don't know who lee lou is he is let's say the charlie monger and warren buffett of china and he has a relationship with them and every tuesday evening he has a phone chat with charlie munger because he is the one that found byd for them he is the one that likely told charlie munger to invest recently in alibaba and he doesn't speak often so when he speaks it's really important to listen plus i seen in the comments of the video that it was a boring video it was not really structured so i'll try to do a methodic didactic presentation to quickly summarize what they discussed the topics are the investment philosophy investing in china then a little bit about the new technologies and also the three key things that you need to have if you want to become a value investor i will put also the link to the full video but i see now that it is unlisted so you have to check that whether you will be able to see the video maybe only through this link and if you get there if you want to see all the specific questions i have put the timestamps into the comment there so you can really go and listen to the answer to the specific questions there if you are interested so if you enjoyed this video if you like warren buffett lilu charlie monger value investing please click that like button for channel support and consider subscribing warren buffett and charlie mongers conference is coming soon and i'll make a summary of that too as soon as i can enjoy that subscribe let's start with the content i'll really go quick summarize the things so the first question was about how lilu's investment philosophy changed over 28 years the answer is very simple it didn't he said that the only thing that changed is his circle of competence when he started as a value investor he was a statistical benjamin graham cigar but the last path so really finding value in numbers then he expanded onto smaller businesses into smaller niches that he could understand then he went to bigger businesses technology so the more you expand your circle of competence your knowledge the easier is to find value investments looking for great businesses with competitive durable modes long investment runways that will do really really well this of course led to the second question which is what kind of businesses are we looking at as value investors and then you need a moat you need a good business but the key is high return on invested capital so that the business when it invests its capital it gets a high return which then can be reinvested into growth and then you find those beautiful businesses that also warren buffett always talks about so a business that can keep compounding returns over the long term such businesses come in all sizes in all industries so it cannot be just that you find the numbers and you find such a business you need to understand the business understand the industry and as warren buffett says also lilu you only need a few of those businesses in your life to do really really well plus the key is if you can wait for the right price and buy such businesses below intrinsic value and as we'll see later there are always these crises that allow you to do that then you have yourself a great deal and then deeper on modes lilu adds something that i haven't yet heard around which is the mode is created but by the management's capacity of allocating capital like warren buffett turned berkshire the textile firm into what berkshire is now his great mode his great strength is capital allocation so when you have management that knows when and where to put capital at work for good return on investment capital that's a big moat for liu and when you think about it it's really what makes a business great then a really good question that will be summarized twice in different perspective in this video in what other ways do you do things differently from most other value investors look at businesses that are already successful so you don't mess with businesses that are not doing well which makes it much more easier to invest you have to be intellectually honest with yourself you should know your circle of competence and you need to know a business in and out in order order to be able to predict outcomes for the next 10 years and predict the next two years of a business with 90 percent certainty keep in mind that most times you can't so you keep learning until you can and this is perhaps the most important message really lilu focuses on knowing knowledge knowing knowing knowing and knowing things so well so detailed that you can predict the business over the next two years from my personal experience that is possible the more i look into copper the more i am able to see the trends the cyclicality there and understanding so value investing and investing is really about knowing more more and more and one great trick that he shared to know more about the business is to have an owner's mentality when you think a little bit about that everyone is so focused on those stock prices going up and down and i constantly get messages today i get sven i'm down 19 on alibaba what should i do now it's 11 already but you see when you focus on stock prices you don't have the right investing mentality because you are not focusing on ownership you're not focusing on okay alibaba when you read the news about alibaba alibaba was fine for having a dominant position i received so many messages about the alibaba was fined not about the alibaba has a dominant position are you investing in the fine or the dominant position so when you look at as an owner you see okay what is alibaba now what are they doing to prevent future fines to keep the dominant position in a form that it can be kept and that's investing and the perfect example what lee liu says is think that you are gifted a business that has no stocks that you own a hundred percent what do you do you start learning about the business understanding the business see the competitors see what can happen and then you become a real business analyst an investor but to have the right mentality you have to think that you own 100 of the business the question of course every interview has to have that question what about the market today and lilu says something different everybody says this time is different are the three most dangerous words in investing lilu says that every time it is different and that's something very very peculiar every time it is different we are in uncharted territories you never know what can happen but if you want to do good as an investor you have to find businesses that will do well through thick and thin that's it then it makes investing simple when it comes to crisis and human irrationality he says that every five to ten years we have a once in a century crisis and humor behavior will never change because it's driven by greed for easy money in good times like we are seeing now based on uncomplete pictures of the environment because i don't think that all the games tanks and etc etc investors understand the real principles of investing and the real things that they are doing but they are attracted by greedy money and when that uncomplete picture turns around all those investors then they start to panning then they start to do irrational things ex more irrationally they are doing now because when you start losing money you make decisions differently and that's normal human behavior in a cycle that only by knowledge we can solve and as he says financial markets actually amplify human instincts the way to deal with your instincts is to find businesses that will do well no matter the environment and know the businesses extremely well to quote him if you just pretend you know a business well you will be tested in difficult times on the question on the question whether to be a generalist or a specialist of course both being generalist in the learning of the markets of the mega trends we'll discuss the mega trends in a second but be a specialist when you start looking at the business and the niche the business is operating then on value investing in china he says how china and asia will have a bigger and bigger role in the future and how the market is not developed and actually undervalued compared to the economy how still trading is under developed how the markets are under developed the financial services and it's good to invest in china especially for u.s investors he might be hinting there for all the dollars that are being printed so you have currency differentiation but you need to know the specifics if you want to invest in chinese banks there are 13 of them it is an opportunity now but you need to understand those banks really really well on new technology where lilu owns byd he says that it's very difficult to predict who will be the winner but it's easy to predict the mega trends for example in the automotive the industry we have autonomous driving ride sharing intelligent design and electric vehicles and those trends are certainly going to be there and now it's up to you to find a business that will do well no matter the fick and finns in the automotive industry which are natural for the industry and if you can find a business that will do well then you have find yourself a great business as he did with byd and then what i want to finish with is how to start value investing what are the three key factors we already mentioned always adopt an owner's mentality maintain intellectual honesty and also study the history of the business because when you study the history of the business allows you to make a judgment on the business when difficult times come when a stock crashes 50 he says that you need to know the business really well to buy more of it if not the market is designed to test you and then you do the wrong thing at the wrong moment in time the interview finishes with a little bit of career discussion by lilu and his fight to lower discrimination of asian americans so very very interesting very interesting chat with lilu the link is in the description below for the full video also for the specific questions you can find them in the comment under the video there click that like button i'll see you soon in a new video

Channel: Value Investing with Sven Carlin, Ph.D.

Views: 42,953

Keywords: li lu, li lu value investing, li lu interview, li lu 2021, li lu warren buffett, li lu himalaya, li lu charlie munger, li lu how to invest, li lu CBS interview, li lu investor, li lu himalaya capital

Id: LWikhUVneYI

Length: 12min 22sec (742 seconds)

Published: Tue Apr 13 2021