📖Li Lu
Conservative Valuation Approach
Conservative valuation protects against overpaying.
Use conservative assumptions in your valuation. Optimistic projections lead to overpaying. It is better to underestimate value and be pleasantly surprised than to overestimate and be disappointed.
🏠 Everyday Analogy
📖 Core Interpretation
In Conservative Valuation Approach, Li Lu focuses on the gap between price and value. Returns come from paying less than what a business is worth, not from guessing short-term market moves.
💎 Key Insight：Pessimistic estimates create a built-in margin of safety.
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❓ Why It Matters
Ignoring valuation turns even good companies into poor investments. Overpaying compresses future returns and leaves little margin when assumptions are wrong.
🎯 How to Practice
Estimate intrinsic value with conservative assumptions, set clear buy ranges, and act only when price offers a meaningful discount with acceptable downside.
⚠️ Common Pitfalls
Confusing a low price with true cheapness
Using one metric without business context
Overly optimistic assumptions that erase margin of safety
📚 Case Studies
1
BYD Investment with Berkshire (2008)
Li Lu introduced Warren Buffett to BYD, investing when markets doubted Chinese automakers and battery technology, focusing on electric vehicles and energy storage.
✨ Outcome：BYD’s value multiplied over the following decade, becoming one of the world’s leading EV and battery companies, validating the long-term China opportunity.
2
Hainan Airlines Investment (1998)
Li Lu invested in Hainan Airlines when it faced financial distress, focusing on long‑term business value rather than market pessimism.
✨ Outcome：The airline recovered and expanded; the investment compounded significantly, illustrating owner mentality and patience.
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