The Most Interesting Investor Who Ever Lived
Summary
TLDRThis video delves into the fascinating story of Li Lu, one of the greatest yet least-known investors of all time. Born during China's Cultural Revolution, Li Lu survived numerous hardships, including the 1976 Tangshan earthquake and persecution after participating in the Tiananmen Square protests. Fleeing to the U.S., he stumbled upon a lecture by Warren Buffett, which sparked his interest in value investing. Li Lu later founded Himalaya Capital, achieving remarkable success by applying Buffett's principles, earning 36% annual returns from 2004 to 2009. His story is not only inspirational but also rich with investing lessons.
Takeaways
- 🌟 Lee Lu is one of the greatest yet lesser-known investors, with a remarkable track record of generating almost 30% annual returns.
- 📝 Lee Lu's journey from China to the U.S. is extraordinary, beginning with his escape from the Chinese government after the Tiananmen Square protests.
- 🌍 Lee Lu was born in 1966 during China's Cultural Revolution and survived the devastating Tangshan earthquake in 1976.
- 📚 Lee Lu stumbled into a lecture by Warren Buffett, which profoundly influenced his investment philosophy, emphasizing intrinsic value and long-term thinking.
- 🏛️ Inspired by Buffett, Lee Lu adopted the concept of intrinsic value, viewing stocks as ownership in businesses rather than mere ticker symbols.
- 📈 Lee Lu's investment career began with student loans, which he successfully grew into a million dollars by applying value investing principles.
- 💼 Lee Lu founded Himalaya Capital in 1998, focusing on investing in high-quality businesses below intrinsic value during the Asian financial crisis.
- 🔍 Lee Lu emphasizes the importance of understanding economic moats and competitive advantages in businesses to sustain high returns on capital.
- 🤝 Charlie Munger became a mentor to Lee Lu, helping him reshape his fund's structure to focus on long-term investments and client commitments.
- 💰 Himalaya Capital achieved an impressive 36% annual return from 2004 to 2009, growing investor capital twentyfold since its founding.
Q & A
Who is Lee Lou, and why is he considered one of the greatest investors of all time?
-Lee Lou is a highly successful investor, managing $15 billion and generating almost 30% returns per year. Despite his achievements, he is relatively unknown compared to other famous investors. His success is attributed to his deep understanding of value investing, a philosophy he adopted after attending a Warren Buffett lecture.
What significant event in Lee Lou's early life symbolized the challenges he would face later on?
-In 1976, when Lee Lou was 10 years old, a 7.6 magnitude earthquake hit his hometown of Tangshan, China, killing an estimated 300,000 people. This event was symbolic of the seismic shifts in China's economic and political landscape, which paralleled the difficulties Lou would later overcome.
How did Lee Lou's involvement in the Tiananmen Square protests impact his life?
-Lee Lou participated in the Tiananmen Square protests, making him one of the most wanted students by the Chinese government. This forced him into hiding and eventually led him to flee China, first to France and then to the United States, where he sought political asylum.
How did Lee Lou's encounter with Warren Buffett influence his investment philosophy?
-Lee Lou attended a lecture by Warren Buffett at Columbia University, which fundamentally changed his views on investing. Buffett's approach to viewing stocks as ownership pieces of businesses and focusing on intrinsic value inspired Lou to adopt value investing as his core investment philosophy.
What is the concept of 'intrinsic value' in investing, and why did it fascinate Lee Lou?
-Intrinsic value refers to the true worth of a business based on its profitability and net assets. Lee Lou was fascinated by the idea that short-term stock price volatility creates opportunities to buy stocks below their intrinsic value, allowing investors to profit as prices eventually align with true value.
What challenges did Lee Lou face when starting his own investment firm, Himalaya Capital, during the Asian financial crisis?
-Lee Lou founded Himalaya Capital in 1998 during the Asian financial crisis. Initially, his fund lost 19% in its first year, leading many investors to withdraw their money. However, Lou held onto his investments, which later surged in value as the Asian economies recovered.
How did Lee Lou's friendship with Charlie Munger help him overcome challenges in his investment career?
-Charlie Munger advised Lee Lou to restructure his investment fund by locking in long-term contracts with clients and closing the fund to new clients most of the time. This advice helped Lou stabilize his fund and focus on long-term investments without the pressure of short-term performance.
What is the significance of the 'economic moat' concept in Lee Lou's investment strategy?
-An economic moat refers to a company's ability to maintain competitive advantages that protect its profitability from competitors. Lee Lou focuses on investing in companies with strong economic moats, ensuring that they can sustain high returns on capital over time.
Why is volatility not considered a risk by Lee Lou, and how does he view it instead?
-Lee Lou believes that volatility is not a risk but an opportunity. He argues that the real risk is the permanent loss of capital. If a business is strong, short-term price fluctuations are irrelevant, and volatility provides chances to buy great businesses at lower prices.
What has been the performance of Lee Lou's Himalaya Capital since its founding?
-Since its founding in 1998, Himalaya Capital has grown its invested money 20 times in size. From 2004 to 2009, the firm earned 36% per year in returns net of expenses, demonstrating Lee Lou's exceptional investment acumen.
Outlines
🌟 The Unknown Investment Genius: Li Lu
Many renowned investors have become famous through public appearances, but Li Lu, managing $15 billion with a near 30% annual return, remains under the radar. His background, including fleeing China and attending a life-changing Warren Buffett lecture, is as compelling as his investment success. This section introduces his quiet presence at Buffett's lectures and highlights how Buffett and Charlie Munger made him a better investor.
🎓 From Survivor to Scholar: Li Lu’s Early Life
Born in 1966 in Tangshan, China, Li Lu survived a devastating earthquake at age 10 during a period of political upheaval. His early years were marked by hardship, including the Cultural Revolution and participation in the 1989 Tiananmen Square protests. Facing persecution, he fled to France and eventually migrated to the U.S. to study at Columbia University. His difficult journey to safety mirrors China’s own economic transformation.
📈 The Spark of Investing: Li Lu’s Buffett Epiphany
While studying at Columbia, Li Lu’s life took a pivotal turn after attending a lecture by Warren Buffett. Buffett’s views on investing—treating stocks as ownership in businesses rather than mere trading opportunities—profoundly shaped Li’s approach. He learned the concept of intrinsic value, inspired by Buffett's professor Benjamin Graham, and began his investing journey based on buying businesses below their intrinsic value.
💼 Applying Value Investing Principles to Build Wealth
Li Lu applied the principles of value investing while still a student, using student loans to make early investments. By the time he graduated, he had accumulated $1 million. His strategy involved researching companies thoroughly, focusing on their intrinsic value. This method led to the founding of his firm, Himalaya Capital, in 1998, just before the Asian financial crisis, providing an opportunity to buy undervalued businesses.
🏦 Navigating the Asian Financial Crisis and Building Economic Moats
The Asian financial crisis of 1998 was an opportunity for Li to invest in quality companies below intrinsic value. He emphasized investing in businesses with economic moats—competitive advantages that protect high returns on capital from competitors. His investments during this period set the stage for his later success, demonstrating his deep understanding of business fundamentals and market dynamics.
🎯 Balancing Generalist Knowledge and Specialist Focus
Li Lu developed the skill of being both a generalist and a specialist. As a generalist, he explored a wide range of businesses but became a specialist when he decided to invest. He learned the importance of understanding the specific elements that make each company or industry unique, with management and company culture often playing a critical role in the company’s success.
📉 The True Risk in Investing and Li’s Long-Term Strategy
Li Lu learned valuable lessons during his early struggles at Himalaya Capital. Despite short-term losses, he understood that the real risk in investing is not volatility but the permanent loss of capital. He emphasized that strong businesses can recover over time, making short-term price fluctuations irrelevant. His focus on long-term value, however, caused tension with clients who sought short-term gains.
🗝 The Munger Solution: Building a Resilient Fund
In 2003, Li Lu met Charlie Munger, who became a key mentor. Munger advised Li to focus on long-term contracts with clients who understood his investment strategy. This advice, along with investments from Munger himself, helped transform Himalaya Capital into a powerhouse. Li’s performance skyrocketed, earning 36% annual returns from 2004 to 2009, and cementing his place as one of the world’s most successful investors.
Mindmap
Keywords
💡Intrinsic Value
💡Economic Moat
💡Volatility
💡Value Investing
💡Tiananmen Square Protests
💡Asian Financial Crisis
💡Himalaya Capital
💡Warren Buffett
💡Permanent Loss of Capital
💡Generalist vs. Specialist
Highlights
Lee Lu, one of the greatest investors of all time, is relatively unknown despite managing $15 billion and generating nearly 30% returns annually.
Lee Lu has a remarkable backstory, from being hunted by the Chinese government to fleeing to the United States and stumbling into a Warren Buffett lecture.
Lu participated in the Tiananmen Square protests, which made him one of the most wanted students by the Chinese government.
After fleeing China, Lee Lu applied for political asylum and eventually moved to New York to study at Columbia University.
Lee Lu attended a lecture by Warren Buffett at Columbia, which profoundly influenced his approach to investing, introducing him to the concept of intrinsic value.
Lee Lu's investing journey began in 1993, focusing on the long-term intrinsic value of businesses rather than short-term stock price movements.
Lu founded Himalaya Capital in 1998 during the Asian financial crisis, investing in high-quality companies below their intrinsic value.
Despite losing 19% in his first year, Lee Lu held onto his investments, which surged in price as Asian economies recovered.
Lu emphasizes the importance of differentiating between short-term volatility and the real risk of permanent loss of capital.
Lu restructured his investment approach after learning from Charlie Munger, focusing on long-term contracts with clients and closing his fund to new investors.
Himalaya Capital achieved an impressive 36% annual return between 2004 and 2009, and grew 20 times in size from its founding to 2010.
Lee Lu’s investment philosophy combines being a generalist in understanding businesses broadly and a specialist when deeply analyzing specific companies.
Lu identifies the importance of economic moats—characteristics that allow companies to fend off competitors and maintain high returns on capital.
Lu views volatility not as a risk but as an opportunity to acquire great businesses at better prices.
Today, Lee Lu manages nearly $15 billion, with most of his investments outside of the United States, continuing to apply his long-term, value-driven investment strategy.
Transcripts
many of the best investors in the world
are extremely well known through
interviews and public appearances but
one of the greatest investors of all
time is hardly known at all I visit
Omaha every year to listen to Warren
Buffett and Charlie munger's lectures
and the man who manages $15 billion and
has generated almost 30% per year was
sitting quietly to Rose back his name is
Lee Lou but who is he and and why why do
you need to know him Charlie made leelou
an even better investor leelou has one
of the most interesting backstories of
all the investors I've studied on the
show he's story of being hunted by the
Chinese government fleeing to the United
States stumbling into a Warren Buffett
lecture and becoming an investing genius
is incredible it's a story everybody
should hear and it's also sprinkled with
investing lessons for those trying to
find success in the stock market so here
is the story and investing philosophies
of China's great investor a quick shout
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Hamish leelu was born on April 6th 1966
in Tang Shang China it was the beginning
of the cultural revolution communist
dictator Mao was pushing to eliminate
any shred of capitalism that remained in
the nation this generation of T men was
born in the darkness of a cultural
revolution the Year Ma died and his
Reign ended the city of Tang xang was
hit by a 7.6 magnitude earthquake 85% of
the buildings were destroyed and its
estimated more than 300,000 people died
leelu was among the survivors he was
just 10 years old at the time looking
back that devastating natural disaster
in 1976 was very symbolic of the seismic
shift happening in the economic and
political landscape in China it was the
beginning of many iterations of
capitalist reform that has led to the
much more prosperous country we see
today but just like China itself leelu's
journey to becoming one of the most
successful investors of all time was
extremely difficult he attended Nanjing
University in 1985 first majoring in
physics before transferring into
economics in his fourth year he
participated in the ill-famed tanaman
Square protests the student Le movement
began after the death of a pro-
reformist member of the CCP who Yao bang
China's economy was growing rapidly
largely due to economic reforms such as
increasing foreign trade but many
believed that the growth was
disproportionately benefiting a small
group of people while those at the lower
end of the socioeconomic scale were
continuing to suffer and that was the
time of Hope for the entire nation for
this Young Generation it is a dream but
of course it's also fear the CCP
installed martial law using the military
to shut down the protests many innocent
protesters and bystanders were killed
some estimates put the death toll in the
thousands so people who participate
would have to face one way or the other
severe persecutions Lou's role in the
protests made him one of the most Wanted
students by the Chinese government say
once you're on the China's most wanted
list uh your name and and pictures began
to appear all over on the radio
television train station and bus station
on the street Lou went into hiding
fearing harsh prosecution from the
Chinese government while being hunted he
was able to connect with a smuggling
Network which was helping students
escape the country so I never thought I
could escape and then I was approached
while I was hiding with people from both
inside and outside and they said they're
organizing an extensive network to
rescue people he needed to apply for
political Asylum but many countries
including the United States were
refusing to take students France was the
only country at that time accepted us so
we all went to uh to France after
fleeing to France he was able to migrate
to the United States moving to New York
to study at Columbia University the
first 23 years of leelu's life were
filled with difficulty that I couldn't
even begin to imagine so he well and
truly deserved some luck on his side and
he got it Lou had received some
scholarships to attend Colombia but he
still accured large debts to receive his
education one day when pondering ways to
make some money a classmate said to him
if you want to know how to make money in
America there will be a speech at the
business school that you must he knowing
nothing about the lecture he walked in
and sat down to learn about investing a
friendly 63-year-old man stood in front
of the small audience and introduced
himself as Warren Buffett at the time
Buffett was already a billionaire from
his incredibly successful investing
career but he was far less famous than
he is today and over the course of the
lecture he broke Lee Lou's preconceived
notions of the stock market as a place
of Ruthless and crooked
Behavior I look at back I feel I'm
inally lucky and I feel nothing but
gratitude I feel lucky to accidentally
Ste uh into uh Buffett's lecture at your
class basically Buffett wasn't talking
about stocks like a typical hedge fund
manager from Wall Street he didn't view
stocks as ticker symbols and prices on a
screen to be traded but rather ownership
pieces of businesses that should be
accumulated over time Lou's investing
Journey started that day in 1993 with a
fundamental idea intrinsic value Buffett
claimed that stocks acted different L
depending on the time scale in the short
run prices bounced around all over the
place reflecting minor shifts in
investor expectations the collective
decision- making of thousands of buyers
and sellers focused on economic Outlook
the business environment or even the
political landscape but over the long
run stock prices trended towards the
intrinsic value of the underlying
business ironically the concept wasn't
Buffett's original idea either he
learned it from his Columbia University
Professor Ben Benjamin Graham Graham is
known as the father of value investing
he described the market Dynamic by
saying that in the short run the market
is a voting machine but in the long run
it's a weighing machine short-term
volatility of stock prices meant it was
possible for an investor to buy a stock
for less than it's worth and to make
money as the price trended back towards
its true value intrinsic value in the
case of stocks is derived from the
profitability and the net assets of the
business or in other words theore ically
if you owned the whole business how much
cash could you pull out of that business
over its remaining life the relatively
simple concept fascinated Lee Lou and he
became obsessed with studying the
investing journeys of Warren Buffett and
his investing partner Charlie Munga when
he graduated in 1996 Lou had already
earned phenomenal returns by applying
the principles he was a guy who was on
student loans he had no money and on the
float of the student loans which is you
know you know he would get the money in
you know January maybe has to pay it in
April or something he said he would
invest the float of the student loans
and when he graduated he had a million
dollars Not only was he spending
countless hours researching and
analyzing companies but he also earned
his Bachelors in economics and MBA and
finished law school all at the same time
he then went straight into the
investment banking World working for 2
years while continuing to invest his own
money in 1998 he decided it was time to
try running his own firm so he founded
Himalaya Capital right at the beginning
of the Asian financial crisis the
Meltdown started In tha land huge
foreign debts forced the country to
unpeg its currency from the US dollar
causing it to collapse and the economy
along with it the pain spread to other
Southeast Asian countries and then to
Japan and South Korea as their
currencies collapsed too stocks across
Asian financial markets fell in a
meaningful way and this was Lee's
opportunity to invest in businesses
below intrinsic value he describes
investing in the shares of what he
considered to be great Asian companies
Great businesses are the ones who really
have above average returners to invested
Capital what makes a great company is in
essence the same as what makes a great
investor it's able to invest money into
assets and produce lots of profit in
return the problem is that if one
business is able to do it why couldn't
other businesses competing against it
just replicate what they have and this
is where the concept of the economic
moat is really important truly good
business is the one who can f off
competitors we can really have enduring
competitive Advantage the business needs
to be able to produce High Returns on
Capital but also be able to defend those
returns from the many other businesses
competing against it this is called an
economic moot some kind of
characteristic about the business that
can't be replicated by High competition
running shoes are all pretty similar at
a basic level so why does Nike sell far
more than its competitors well it's
because it has something that they can't
replicate the Nike brand the history the
cultural and social significance that
make their shoes more desirable than
other brands each time is different you
have to really look for each specific
company company in specific ways no two
companies or Industries are the same so
you need to get good at figuring out
which elements are important in each
case and this is particularly the case
when it comes to management well in a
lot of the companies uh the management
will make a big differences the culture
of those management were produced will
make a big differences but in the small
set of experiences management really
matters almost nothing one of the most
important things that leelo figured out
is that you need to be both a generalist
and a specialist at different stages of
the investing process well in a sense
you always want to be a generalist uh in
term of a student of businesses but by
the time you really get into the
companies you really decided to invest
you really better become a true
specialist have a broad interest that
allows you to scan many types of
businesses and then a willingness to
become an expert in the few areas you
ultimately decide to invest in going
back to the Asian financial crisis found
some companies he considered to be high
quality and was able to buy them far
below intrinsic value because the crisis
had pulled everything down in his first
year running Himalaya Capital his fund
lost 19% but he held on to his bets
within 2 years the suffering Asian
economies received bailouts from the IMF
and China and as the economies recovered
lose investment surged in price
investing through this crisis gave Lou a
deeper understanding of risk the
traditional Finance industry believes
the biggest risk to the investor is
volatility but the truth is that the
biggest risk is permanent loss of
capital if the underlying business
behind the stock is strong and there's
very little risk of it going out of
business then price movements on a week
by- week or monthly basis are completely
irrelevant in fact not only is
volatility not a risk it's also an
opportunity to own great businesses at
better prices unfortunately his client
didn't see it that way Lou's poor
short-term performance led many of his
investors to take their money out of his
fund they couldn't grasp the idea that
the short-term prices didn't reflect the
long-term value of the companies that he
had bought with their money it's the
fundamental problem with the traditional
Finance industry Lou would find the
solution to his problem through his
friendship with Charlie Munga he'd been
Lou's Mentor from afar for years through
the lessons he and Warren Buffett shared
each year at the birkshire pathaway
shareholder meetings during their first
in-depth conversation in 2003 Munga said
it was the same problem that he had
faced himself when running his own
investing partnership a few decades back
the solution came down to the structure
of the fund uh find clients and only
work with clients who are willing to be
locked into long-term contracts so they
can't withdraw money during periods of
poor performance and then most of the
time have your doors closed to new
clients so you don't have this constant
need to find new investing opportunities
to invest that new money Lou did just
that even receiving investment from
manga himself and his performance since
then has been astounding Himalaya
Capital earned 36% per year returns net
of expenses from 2004 to 2009 and from
1998 when it was founded to 2010 The
Firm grew invest the money 20 times in
size today Lou manages almost $15
billion in assets most of which is
invested outside of the US if you
enjoyed this deep dive into one of the
greatest investors of all time consider
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