In a wide-ranging and deeply philosophical keynote at Peking University, Li Lu, founder of Himalaya Capital, offered a roadmap for value investors grappling with today’s turbulent environment. He reminded the audience, “The macro is what we must accept; the micro is where we can and should make a difference.”
Li Lu doesn’t shy away from the challenges. “Both domestically and internationally, a series of issues have emerged in recent years that can be referred to as the ‘predicaments of our era,’” he warned, pointing to rising youth unemployment, deflationary pressures, and a strained global order. But rather than panic, he urges long-term investors to lean into clarity and discipline.
The heart of Li’s message is enduring: know what real wealth means. “The essence of wealth is the proportion of purchasing power in the economy,” he said. In a world of inflation and macro volatility, “static wealth, carried in cash, cannot achieve sustainable, compound growth.” His solution? Own “shares of the most dynamic companies in the most vibrant economies.”
Importantly, Li distills the philosophy of value investing into six core principles. Among them: “A stock is not just a tradable piece of paper; it represents part ownership of a company.” And investors must “fish where the fish are,” meaning focus on sectors and markets where mispricing exists and competition is low.
Perhaps most critically, he emphasizes the concept of a “circle of competence,” urging investors to “clearly know what they understand, what they do not, and the boundaries” of their knowledge.
Li also pays tribute to mentors like Charlie Munger, sharing a story of Munger fishing in different lakes with a local guide. The takeaway? “Investors don’t need to understand every company… The key is to find that ‘lake’ where you can catch fish.”
Drawing inspiration from history, Li notes that value investing was born in times of turmoil. “Ben Graham… discovered the methodology of value investing during a time of tremendous macroeconomic challenges,” including the Great Depression and WWII. Similarly, John Templeton bought every U.S. stock under $1 in 1939, profiting handsomely.
In closing, Li reaffirms the enduring appeal of value investing: “It is a way to breathe in sync with the times and grow together with it.” For investors seeking stability in uncertain times, his message is clear: focus on what you can control, stay rational, and invest with a long-term mindset rooted in deep understanding.
You can read the transcript from the keynote here:
Li Lu – Keynote Speech Peking University – December 2024
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