In this CCBC Fireside Chat with Bruce Greenwald, Li Lu discusses the importance of understanding businesses deeply, drawing inspiration from Ben Graham’s concept of Mr. Market.
He warns that financial markets can be volatile and are designed to exploit human weaknesses. Investors who lack true understanding will eventually face losses, especially during extreme market downturns.
Conversely, those with a solid grasp of underlying businesses can capitalize on these opportunities, buying quality securities at significant discounts.
Here’s an excerpt from the chat:
Lu: And this is really going back to Ben Graham’s basic concept of Mr. Market, that is there to serve you, not to instruct you. Except the real game of the investment, those phenomena both on the up and down tend to be quite extreme and testing.
And so the other thing that will be very testing is that you really do need to understand the business itself. And if you really try to pretend you understand and you’re really driven by something else other than deep understanding, you’ll be tested.
And so that’s the salient nature of the financial market. And sometimes I almost feel that they existed to really, to catch human weaknesses. If you really don’t understand something that you pretend to, you will be busted at some point.
But if you truly understand, you will be able to add when the security is really down 50, 60, 70%.
You can watch the entire fireside chat here:
[CCBC] Fireside Chat – Value Investing in China
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