Super Investor #27 in our series is Li Lu – The Trusted Protégé of Charlie Munger. Li Lu is one of the few investors that Warren Buffett and Charlie Munger trust—a rare distinction in the world of value investing. As the founder of Himalaya Capital, Li Lu follows a deep value investing approach, focusing on businesses with strong competitive advantages and long-term compounding potential.
Despite being lesser-known than some of his peers, Li Lu’s investment success, particularly his early bet on BYD (BYDDY), has cemented his reputation as a top-tier investor. His journey from a student leader in the Tiananmen Square protests to managing billions is nothing short of remarkable.
This article explores his background, investment philosophy, notable stock picks, and the lessons individual investors can learn from his approach.
1. Li Lu’s Early Life and Background
From Political Activist to Wall Street Investor
Li Lu was born in China in 1966 during the Cultural Revolution. He grew up in a turbulent political environment, which shaped his early worldview.
In 1989, as a student at Nanjing University, Li Lu became one of the key organizers of the Tiananmen Square protests. When the protests were violently suppressed, he was forced to flee China, eventually finding refuge in the United States.
Determined to rebuild his life, Li Lu attended Columbia University, where he earned three degrees simultaneously—a B.A., an M.B.A., and a J.D. His exposure to investing came during his time at Columbia, where he studied under legendary investor Benjamin Graham’s disciple, Bruce Greenwald.
Entering the Investment World
After graduating, Li Lu founded Himalaya Capital in 1997. He started by managing a small hedge fund but quickly gained recognition for his ability to find undervalued opportunities. His approach was deeply influenced by Warren Buffett and Charlie Munger, focusing on long-term investing in high-quality businesses.
Munger, in particular, took notice of Li Lu’s talent. In the early 2000s, Munger began entrusting him with capital, and by 2010, Munger publicly stated that if anything happened to him and Buffett, Li Lu would be the one to manage Berkshire Hathaway’s money.
2. Li Lu’s Investment Philosophy & Strategy
Core Principles of Li Lu’s Investing Style
Li Lu follows a value investing approach but refines it in three key ways:
- Deep Value with High Quality – He seeks undervalued stocks but insists on high-quality businesses with long-term durability.
- Concentrated Portfolio – Unlike traditional value investors who diversify widely, Li Lu focuses on a handful of exceptional companies.
- Long-Term Compounders – He looks for businesses that can grow earnings for decades, much like Buffett’s approach to buying and holding great businesses.
Li Lu’s Investment Checklist
His investment decisions are guided by a simple yet powerful framework:
- Durable Competitive Advantage – Does the company have a long-term moat?
- Strong Management – Are the leaders ethical and competent?
- Growth Potential – Can the company compound earnings over decades?
- Margin of Safety – Is the stock trading at a price significantly below its intrinsic value?
Similarities to Warren Buffett & Charlie Munger
Li Lu’s approach closely mirrors Buffett and Munger’s philosophy, but he also integrates a deeper understanding of China’s economic landscape. Unlike Buffett, who has been hesitant about China, Li Lu has successfully navigated the region’s complex investment environment.
3. Notable Investments & Track Record of Li Lu
BYD (BYDDY): The Investment That Made Li Lu a Billionaire
Li Lu’s most famous investment is his early bet on BYD (BYDDY), a Chinese electric vehicle and battery manufacturer.
- In 2008, Li Lu introduced Charlie Munger and Warren Buffett to BYD.
- Buffett’s Berkshire Hathaway (BRK.B) invested $232 million for a 10% stake in BYD.
- That stake has since grown to be worth over $8 billion, making it one of Berkshire’s best-performing investments.
Li Lu saw BYD’s potential long before Tesla (TSLA) made EVs mainstream. He recognized its strong leadership under Wang Chuanfu and its innovative battery technology as key competitive advantages.
Other Notable Investments
Li Lu’s portfolio remains largely private, but he has consistently focused on:
- Chinese technology and consumer companies – Investing in companies that dominate their industries.
- U.S. and global companies with deep moats – Similar to Buffett’s strategy, Li Lu avoids speculative growth stocks.
4. Li Lu’s Lessons for Individual Investors
Key Takeaways from Li Lu’s Approach
Everyday investors can apply several key lessons from Li Lu’s investing philosophy:
- Focus on High-Quality Businesses – Buying great businesses at fair prices is better than buying fair businesses at great prices.
- Invest for the Long Term – Li Lu doesn’t trade stocks; he buys and holds for decades.
- Understand What You Own – Like Buffett, he only invests in businesses he deeply understands.
- Take Advantage of Market Mispricing – When high-quality companies go on sale, take action.
- Stick to Your Circle of Competence – If you don’t understand an industry, don’t invest in it.
Common Mistakes to Avoid
- Chasing Hot Stocks – Li Lu avoids hype-driven stocks, focusing instead on fundamentals.
- Over-Diversification – Too many stocks dilute returns. He prefers a concentrated portfolio.
- Short-Term Thinking – Patience is key in compounding wealth over time.
5. Challenges & Criticism of Li Lu
Difficulties Faced
Like all great investors, Li Lu has faced challenges:
- China’s Regulatory Risks – The Chinese stock market is volatile, and government regulations can impact investments.
- Limited Transparency – Many of his investments are private, making it hard to analyze his track record in detail.
Criticism
Some critics argue that Li Lu’s focus on China carries geopolitical risks. Others question the lack of disclosure in his investment portfolio. However, his track record suggests he has successfully navigated these risks.
6. Legacy & Influence of Li Lu
Li Lu’s Impact on the Investment World
- Bridging East and West – He introduced Buffett and Munger to Chinese investments.
- Mentoring the Next Generation – Li Lu has influenced many investors through his writings and speeches.
- Proving the Power of Value Investing in China – He has shown that Buffett’s principles work globally.
Books & Contributions
Li Lu has written “Moving the Mountain,” a book about his experiences in Tiananmen Square. While not an investment book, it reflects the discipline and determination that later shaped his investing career.
7. Li Lu’s Quotes & Wisdom
Famous Quotes by Li Lu
- “The best investors do not react to noise. They focus on value.”
- “Wealth is created by owning great businesses, not by trading stocks.”
- “The market is a voting machine in the short term and a weighing machine in the long term.” (Originally from Benjamin Graham, but Li Lu frequently cites it.)
Core Investing Wisdom
Li Lu’s philosophy can be summed up as: “Find outstanding companies, buy them at reasonable prices, and hold them forever.”
Why Li Lu is a Super Investor and Trusted Protégé of Charlie Munger
Li Lu’s success proves that deep value investing works across different markets and cultures. His ability to identify long-term compounders, his disciplined approach, and his willingness to concentrate his portfolio have made him one of the most respected investors in the world.
For individual investors, the biggest lesson from Li Lu is simple: “Patience and quality matter more than anything else.”
Happy Investing!