The Most Interesting Investor Who Ever Lived

Summary

This 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

00:00

🌟 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.

05:02

🎓 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.

10:04

📈 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.

Keywords

💡Intrinsic Value

Intrinsic value refers to the inherent worth of a stock or business, based on its actual financial performance and assets, rather than its current market price. In the video, Lee Lou becomes fascinated by this concept after attending a lecture by Warren Buffett, which profoundly influences his investment philosophy. The idea is that while stock prices can fluctuate wildly in the short term, they will eventually reflect the true value of the underlying business.

💡Economic Moat

An economic moat is a competitive advantage that allows a business to maintain high returns on capital and fend off competitors. In the video, Lee Lou emphasizes the importance of investing in companies with strong economic moats, as these businesses are better equipped to sustain profitability over time. Examples include brand recognition, patents, or exclusive access to resources, as seen with companies like Nike.

💡Volatility

Volatility refers to the degree of variation in the price of a financial instrument over time. In traditional finance, volatility is often seen as a risk; however, Lee Lou views it as an opportunity to buy great companies at discounted prices during market downturns. The video highlights how Lou's understanding of volatility differs from the conventional view, allowing him to capitalize on short-term market movements.

💡Value Investing

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic value. Lee Lou, influenced by Warren Buffett and Benjamin Graham, adopts this approach, focusing on buying undervalued stocks and holding them until their market price aligns with their true value. The video underscores how this strategy has been central to Lou's success.

💡Tiananmen Square Protests

The Tiananmen Square Protests were a series of demonstrations in Beijing in 1989, led by students advocating for political reform and greater freedom. Lee Lou's participation in these protests made him a target of the Chinese government, leading to his eventual escape from China. This experience is a pivotal part of Lou's backstory, showcasing his resilience and shaping his later success as an investor.

💡Asian Financial Crisis

The Asian Financial Crisis of 1997-1998 was a period of financial turmoil that began in Thailand and spread across East Asia, leading to sharp declines in currency values, stock markets, and economic growth. Lee Lou saw this crisis as an opportunity to invest in high-quality Asian companies at deeply discounted prices, which later contributed to the significant growth of his investment firm, Himalaya Capital.

💡Himalaya Capital

Himalaya Capital is the investment firm founded by Lee Lou in 1998. The firm is known for its long-term investment approach and its focus on value investing principles. The video traces the firm’s success, including its remarkable returns, which have made it one of the most successful investment firms managed by an individual who remains relatively unknown to the public.

💡Warren Buffett

Warren Buffett is one of the most famous and successful investors of all time, known for his value investing approach. Lee Lou's accidental attendance at Buffett's lecture at Columbia University is a turning point in his life, leading him to adopt the principles of intrinsic value and long-term investment. Buffett's influence is a recurring theme in the video, highlighting the mentor-student relationship between him and Lou.

💡Permanent Loss of Capital

Permanent loss of capital refers to the complete loss of an investment, which cannot be recovered. Unlike volatility, which Lee Lou sees as a temporary fluctuation, permanent loss of capital is the true risk that investors must avoid. The video discusses how Lou's experience during the Asian Financial Crisis deepened his understanding of this concept, shaping his cautious yet opportunistic investment style.

💡Generalist vs. Specialist

The generalist versus specialist concept in investing refers to the balance between having a broad knowledge of various industries (generalist) and deep expertise in a specific area (specialist). Lee Lou advocates for being a generalist when scanning for investment opportunities but becoming a specialist when deciding to invest in a particular company. This approach allows him to identify and capitalize on unique investment opportunities.

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

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