📖Li Lu
Probabilistic Thinking
Think in probabilities, not certainties.
Think in probabilities, not certainties. Every investment has a range of possible outcomes. Weight your decisions by the expected value of each scenario.
🏠 Everyday Analogy
📖 Core Interpretation
In Probabilistic Thinking, 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：Expected value calculations guide rational decisions.
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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
Bank of America Legacy Issues (2015)
Ongoing legal settlements and past misconduct at Bank of America highlighted culture and management integrity risks despite improving balance sheet.
✨ Outcome：Li Lu emphasized assessing current leadership’s character and incentives; concluded management had shifted toward prudence, making the bank an investable turnaround with substantial upside.
2
Dot-Com Bubble Discipline (1999)
Li Lu avoided most internet stocks despite market euphoria, focusing on businesses with proven cash flows and understandable models.
✨ Outcome：Preserved capital through the 2000–2002 crash, reinforcing his principle that intellectual honesty means resisting narratives unsupported by economics.
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