Category Archives: Li Lu

Li Lu Talk

Here is a brief summary of a Li Lu Talk at Bruce Greenwald’s value investing class. Li Lu is a hedge fund manager at Himalaya Capital.

While introducing Li Lu, Greenwald says that there are only three people that he would like to have manage his money when he retires: Seth Klarman, Greg Alexander and Li Lu who already manages all of Charlie Munger’s fortune.

The three most important things Li Lu learned was from Warren Buffett:

  1. A stock is a piece of a business, not a piece of paper
  2. Always seek a margin of safety
  3. Ignore short term volatility


To learn how to invest, he spent two years studying everything ever written by Buffett.

Look at what you can lose before you look at what you can make. There are many ways to fail and few ways to succeed. Find something you are good at, that you enjoy, analyze all the ways you can fail and make sure that you don’t do them. If you have an intrinsic passion you will be light years ahead of your competition.

Investing is not about the past, but all of the cash that will be generated in the future.

You must know more about the business that you are buying than other investors. But there will always be things that you do not know, so buy the business with a sufficient margin of safety to make up for the uncertainty.

You must not rely on the ideas of others. If you do you won’t know what to do when the stock you are holding declines. Do you hold or do you sell? Without your own original analysis, you won’t know what to do.

To gain the kind of insight required to invest in this manner you need to understand the underlying business extremely well. Imagine that you inherited the business and needed to learn all about it, as it is the sole source of your wealth. Study it and think about how you would run it, and think about how you would improve it to maximize its value. Then you will get a feel for what it is worth.

All you need are 10 great ideas over the course of 40 years to become wealthy beyond your wildest dreams.

Be prepared to experience a “once in a century” disaster every few years. Berkshire declined 50% on three separate occasions, so you should not expect any gentler treatment than the world’s best investor. A keen understanding of the underlying businesses you own will enable you to hold on during these inevitable draw downs.

Learn continuously because if you are holding the wrong companies, these 50% draw downs can turn into 100% wipe outs.
Look at the trend in the return on capital in the business and in the industry. Watch out when it starts declining across the board.

You can get a full transcript of this Li Lu talk at

Li Lu: Virtual Orphan to Investing Prodigy

Li Lu is considered by many to be one of Warren Buffet’s top picks to be his successor at Berkshire Hathaway. After generating compound annual returns in excess of 36% from the fourth quarter of 2004 to 2009 and 29% from 1998 to 2009 it is not hard to see why people think this and why Charlie Munger and many other high profile people have given Li Lu their money to manage.

Li Lu’s Life Story

Not only has Li Lu generated impressive returns, but his life reads like a Horatio Algers story. He was born in 1966 in Tangshan, China. When he was a year old, he was separated from his parents and went through six adoptive families before he was ten. His mother and his father were condemned by Mao’s government and sent to labor camps. She was allowed to keep only one child, so she kept Li’s older brother. After surviving the 1976 Tangshan earthquake, which killed the adoptive parents that he had grown to love, he went on to become one of the student leaders of the Tiananmen Square protests. As Chinese government started cracking down on the protesters, he managed a well-timed escaped from China and ended up studying at Columbia University, where he became on of the first students to receive three degrees simultaneously.

In 1997, he started Himalaya Capital, where he managed a hedge fund and a venture capital fund at the same time. In 2004, after meeting Charlie Munger and being inspired by Munger’s ideas he transformed Himalaya into a long only investment vehicle modeled on Warren Buffet’s early investment partnership.

Meeting Charlie Munger

Seven years after meeting Charlie Munger at a mutual friend’s house, Li Lu had a extended heartfelt talk with Munger in 2003. They talked about Li’s past and current investments and the day-to-day problems Li faced when running his funds. Munger mentioned that the problems Li faced were endemic to Wall Street and the only solution was to forge a different path. Munger encouraged Li to diverge from Wall Street and offered to invest if he would have the courage to do this.

With assistance from Munger, Li embarked on a radical transformation of his fund to resemble the incredibly successful early investment partnerships of Buffet and Munger. These partnerships managed to eliminate the myriad of principal agent problems endemic to hedge funds and encouraged partners to commit for the long haul, allowing Li to invest for the long term, without worry of redemptions.

Li says that Munger is the most unique person that he has ever met. Munger approaches every problem by inverting. Instead of looking at the successes, he starts by looking at the failures and strives to avoid doing what the failures do. For example, when investing, Munger looks at all the ways that investors fail, like: overtrading, excessive diversification, buying momentum rather than value, and so on. And then he strives to do the opposite.

Further reading:

Li Lu’s Investing Process
How Li Lu makes up to 36% annually…

Li Lu’s Outrageous Life Story
Separated from his birth parents one year after being born and six sets of adoptive parents before the age of 10…

The Charlie Munger Effect
Li Lu tells us how Munger transformed his investment philosophy…