📖Li Lu
Focus on Intrinsic Value
Compare price to intrinsic value, not to past prices.
Always estimate the intrinsic value of a business before investing. Compare price to value, not price to past price. The gap between price and value is where profits are made.
🏠 Everyday Analogy
📖 Core Interpretation
In Focus on Intrinsic Value, 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：The price-value gap is the source of returns.
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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
Post‑SARS Chinese Banks Review (2003)
Li Lu studied major Chinese banks after SARS, focusing on their deposit franchises, regulatory protection, and scale advantages as moat characteristics.
✨ Outcome：Selected top institutions with strong moats and avoided weaker lenders, resulting in superior long‑term returns versus the Chinese financial sector.
2
BYD Governance Concerns (2011)
Investor skepticism arose over BYD’s related‑party transactions and rapid equity issuance, raising questions about capital allocation discipline and minority shareholder treatment.
✨ Outcome：Li Lu engaged with management, judged integrity and long‑term focus intact, maintained position; BYD later compounded significantly in value.
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