Monday, June 7, 2010

Li Lu: Listener learned well

Those hundreds of hours of discussions with thousands of college students may pay off for Warren Buffett in a big way.

The most direct dividend may be a 44-year-old Californian who is a possible candidate to make investment decisions for Berkshire Hathaway Inc. after Chairman and CEO Buffett.

Li Lu was in the audience in 1993 when Buffett talked to about 80 Columbia University graduate students in New York for a class on value investing taught by Bruce Greenwald.

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Buffett: “Over time I evolved more into trying to find the wonderful business. And if you find one, the best thing to do probably is not to sell it. It will go on and on usually, even if it looks a little overpriced.”

Lu: “That’s the good thing about really buying a good business. The business takes care of itself. You’re riding up and down with the strength of the business.”
Lu told the students that only about 5 percent of people are cut out to be value investors, with “insatiable curiosity” about almost any subject and the drive and ability to build up encyclopedic knowledge and to leap into the right investments.
“You have to be very, very comfortable being very much by yourself,” he said, since nearly everybody else follows different investing ideas. “It probably means that you’re somehow genetically mutated through the process of evolution. ... You have to know you’re right because your evidence shows it’s right.”

Once in a great while, he said, all that research turns up an outstanding investment idea that everyone else misses.

“When the thing happens, you have to just devote day and night into it,” Lu said. “You have to do everything complete. You have to do it fast. And that’s why you have to train yourself all those times. ... When the opportunity comes, you have to jump on it.”

Lu earned three degrees from Columbia and operated the Himalaya Capital Partners hedge fund on Wall Street before moving to the same office building as Munger in Pasadena, where he runs an investment fund.

It was Lu, some say, who introduced Munger to BYD Inc., the Chinese battery and auto manufacturer. Munger, in turn, persuaded Buffett to invest Berkshire money in BYD, and Munger has mentioned Lu favorably in recent months.

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