Li Lu Investment Analysis Prompt

Three misconceptions:

**Misconception 1: "Li Lu is just Munger's follower"**
- Li Lu has independent investment judgment
- BYD was Li Lu's recommendation to Munger, not the other way around
- His China market experience is something Munger doesn't have

**Misconception 2: "Value investing doesn't work in China"**
- Li Lu proved it with BYD case
- A-share market is less efficient, actually giving value investors more opportunities
- Key is understanding Chinese market's special characteristics

**Misconception 3: "Learning from Li Lu means buying BYD"**
- BYD is the result, not the method
- Li Lu's method: deep business model research + understanding China + waiting for margin of safety
- The next "BYD" won't be BYD, but a new undervalued quality company

Li Lu's method has strong reference value for ordinary people:

✅ **Why worth learning**:
- His methodology is clear and logical
- Shared investment philosophy through public speeches and writing
- Especially suitable for investors in Chinese market

✅ **Learning path**:
1. Read "Civilization, Modernization, Value Investing and China"
2. Watch Li Lu's Columbia University lectures
3. Start researching from industries you understand
4. Build deep research files on 3-5 companies
5. Buy when margin of safety appears

⚠️ **Difficulties**:
- Need deep understanding of Chinese economy and policy
- Patience is the biggest challenge (may go years without trading)
- Concentrated investing requires very high research conviction

Li Lu is the "localized" version of Munger's method for China:

**Inheritance**:
- Deep research, circle of competence, margin of safety — fully consistent
- Concentrated holdings, long-term holding — fully consistent
- Valuing management quality — fully consistent

**Innovation/Localization**:
- Deep understanding of Chinese policy and political economy
- Skilled at finding China-specific opportunities (e.g., new energy)
- Unique insights on Chinese consumer market and tech innovation
- Greater emphasis on entrepreneurial spirit (e.g., Wang Chuanfu)

**Key difference**:
- Buffett/Munger mainly invest in mature companies; Li Lu dares to invest in growth-stage (e.g., early BYD)
- Li Lu better at finding overlooked value in immature markets

Li Lu's method is best suited when market conditions align with Value investing, Chinese market expertise, long-term holding characteristics. Investors should decide whether to adopt this strategy based on their risk tolerance and investment objectives.

Li Lu's theory integrates Eastern and Western investment wisdom:

**Three cores**:
1. **Intellectual honesty**: Only invest in truly understood companies, acknowledge what you don't know
2. **Independent thinking**: Don't follow market emotions, form independent judgments through deep research
3. **Long-termism**: The longer the investment horizon, the stronger the compounding effect

**Lineage with Buffett**:
- Li Lu is the only external fund manager Munger invested in
- Combined Buffett/Munger methodology with Chinese market
- Invested in BYD for Munger family (still returning 20x+)

**Li Lu's special contribution**: Validated value investing in China, proving it works beyond mature markets

**Li Lu** is founder of Himalaya Capital and the only external fund manager Charlie Munger invested in. Core philosophy is **"Value Investing 3.0"**: focus not only on asset value (1.0, Graham), but also on business profitability (2.0, Buffett), and more on intrinsic value and long-term growth (3.0, Li Lu). Li Lu emphasizes deep research: spending years studying an industry, understanding supply chains, competitive landscape, technology trends; ultra-long-term holding (10+ years), enjoying compound growth. Representative investment: BYD (held since 2008, returns over 20x). Li Lu proved that in emerging markets (like China), combining value and growth investing can achieve higher returns. His success lies in deeply understanding industry essence and corporate moats.

Li Lu is the only external fund manager Munger invested in, his method is proven:

✅ **Evidence of effectiveness**:
- BYD investment returned over 20x
- Long-term performance exceeds most Chinese fund managers
- Combined value investing with Chinese market characteristics

⚠️ **Conditions for application**:
- Need deep understanding of Chinese economy and industries
- Need extreme patience (held BYD for 10+ years)
- Need to withstand short-term volatility (A-shares far more volatile than US)

💡 **Key**: Li Lu's success isn't copying Buffett, but adapting value investing principles to Chinese context

⚠️ Pay special attention to China market's uniqueness.

Li Lu is one of few masters successfully practicing value investing in China, emphasizing:
- China's high retail investor ratio means high volatility, but more opportunities for long-term investors
- Must understand China's policy environment and cultural context
- Can't simply copy US value investing standards

✅ Li Lu's China value investing process:

1️⃣ Confirm industry's development stage in China (compare with developed countries)
2️⃣ Evaluate company's competitive position (market leader? Deep moat?)
3️⃣ Evaluate management quality (especially in China, integrity is critical)
4️⃣ Calculate reasonable valuation and wait for margin of safety
5️⃣ Hold long-term, don't be shaken by short-term volatility