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Li Lu’s Case Studies in Becoming “Fabulously Rich” (2006)

Li Lu of course is made more famous by Charlie Munger. Lu gave a talk to the Colombia Business School’s Value Investing class in 2006 and ended the lecture with the words of how to become “fabulously rich”.

What I heard (a.k.a key take-aways) from the lecture (in no particular order):

  • You only have very few good, really good, ideas in your life.
  • Value investors are in the minority and makes up about 5% of public market participants. Stock markets are (inherently) made for people to trade and value investors will always be in the minority.
  • The best investors are first and foremost a good journalist. Someone that uncovers as much about a particular company including the integrity of management, any public filings (including law suits in the case of Timberland) but anything that you can piece together that full picture. Essentially how valid and true are the things the company is signalling to the public markets.
  • “Keep your innocence.” Was Lu’s advice when talking about how much capital to allocate to a quality investment that have been extensively researched and is of “value”. The innocence part is to put in as much money as possible. This is in contrast to being an analyst in a fund whereby one is restricted to put in only amounts by basis points.
  • To be confident in your investments you need to have the following: (i) complete information and (ii) accurate information. Not having 100% of both will make you run into mistakes.
  • Be very proficient in doing mental math on ratios and aggregate numbers when reading 10k and 10q and filings. That’s the only way to be good at it and make snap judgements. It’s also fast enough to cut through the noise and get to the better companies.
  • There comes a time when a good quality business that is small and has a small market share and small influence on the market will cross an “inflection point”. This might be the right time to strike because it may be on its way to becoming a monopoly with “winner-take-all” effects.

Companies that were mentioned or were asked by students in the lecture:

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