7/2/12

Li Lu's Second Lecture at Columbia

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Li Lu's Second Lecture At Columbia

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Jun 25, 2010 | About: BRK-A +0%

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Jacob Wolinsky
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Li Lu's lecture at Columbia university was recently posted on the site by Ravi
or rationalwalk and myself. It turns out Li Lu recently gave another lecture at
Columbia in April 2010. Thanks to my friend David Hui Lau of
[url=dahhuilaudavid.blogspot.com]dahhuilaudavid.blogspot.com[/url] for this

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I will post the beginning of the transcript here with a link to the rest at
[streetcapitalist.com]. The link to the actual video is posted at the end of the

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article. By now many of you know that Li Lu is likely to be one of the CIO
candidates for Berkshire Hathaway. Based on Berkshires investment in BYD,

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the fact that Lu manages Charlie Mungers money, and that even Buffett
would give money to Lu if he ever retired (according to Greenwald) makes me

think this is pretty likely.

With that in mind, I believe it is insightful to study whatever you can find about him and his
approach. I think this lecture from 2010 is great. The recording has some audio issues making it
difficult to hear and I thought that some of you might enjoy reading notes from the talk. This is not a
true transcript, but an approximation of what was said. I think it comes pretty close, having listened
to the lecture a few times. I think you will find it helpful and Lus talk rewarding.

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to manage his money. First is Seth Klarman of the Baupost Group, who you will hear from later in
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Li Lu: Columbia is where my whole life in America started. I could barely speak the language. In
Columbia it was where I had a new life. It was really in the Value Investing class where I got my
career start. I was really worried about my student loan debt at the time and a friend told me about
this class and said I need to see a lecture from Warren Buffett.

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What I heard that night changed my life. He said three things:

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1. A stock is not a piece of paper, it is a piece of ownership in a company.

2. You need a margin of safety so if you are wrong you dont lose much.
3. In the market, most people are in it for the short term. It allows you a framework for dealing with
the day to day volatility.

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Those were three powerful concepts. I had never viewed the stock market like that. I viewed it
negatively as a place made up of manipulators who were lining their own pockets. I embarked on an

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intensive two year study learning everything about Buffett.

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7/2/12

Li Lu's Second Lecture at Columbia

Two years after that I bought my first stock. After I graduated I worked at an investment bank for a
year and realized it was a mistake. I tried to start a fund but I didnt have a track record. The first
year I managed money I lost 19%.
Being a value investor means you look at the downside before looking at the upside. Before
becoming an investor you need to look at how you can fail at this game. There are all sorts of ways
you can fail. You need to examine who you are and see if you could be good at it. If you could ever
find something you can do well that you really like that will be your best investment. You will do
better than competitors. If you can do it with intrinsic passion, that really over time will add
enormous value to you.
Back to the game of investing. This concept of margin of safety is an essential concept to be a
good investor. The future is unpredictable, you will always be dealt surprises, some positive most
negative. You need to build in a level of safety so that whatever happens, you will not get crushed.
If you can really successfully know what you are getting into, you can pretty much navigate. Most
people are troubled by what they dont know. The world is divided by those who know and those
who dont know. If you really know you will not pull triggers like Wall St. traders. If you are truly
intellectually honest, you would not do anything.

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This class teaches you to know what you are getting into, especially accepting what things you
dont know. The game of investment is really continuous learning. Everything affects an investment,
it constantly changes. You are not investing in the past but the accumulative cash flow of the
future. You have to want to find a certain set up where you can know something that most people
dont know. There are plenty of things I dont know but they dont factor into the purchase because I
am using a huge margin of safety. Buying a dollar at 50 cents. So if things turn against you, you will
be okay. That is not easy. This business is brutally competitive. It is so impossible to know
everything and know exactly what is going to happen to a business from now till the end that you
really have to accept that what you dont know.
Finding an edge really only comes from a right frame of mind and years of continuous study. But
when you find those insights along the road of study, you need to have the guts and courage to
back up the truck and ignore the opinions of everyone else. To be a better investor, you have to

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The Buffett/Munger Bargain Newsletter June's
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The stock price has followed suit. Since
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stand on your own. You just cant copy other peoples insights. Sooner or later, the position turns
against you. If you dont have any insights into the business, when it goes from $100 to $50 you
arent going to know if it will back to $100 or $200.
The rest of the transcript can be found at the following link:
http://streetcapitalist.com/2010/06/24/li-lus-2010-lecture-at-columbia/
There is no embed code, but the three hour long video can be found at the following link:
http://cbs360.gsb.columbia.edu:8080/ess/echo/presentation/749b9e77-b822-456f-87849dff07518360
About the author:
I am VP of Business Development for Sum Zero (http://sumzero.com), the largest community of
buy-side analysts; consisting of over 5,900 hf and mf analysts, and over 3,600 extensive investment
write-ups. I have prior experience in a value based pe firm focused on PIPE transactions in microcaps, and at a value based research firm, which focused on smid caps. In my personal portfolio I
have outperformed the market by a cumulative ~48% since 3/2008 (inception date). I can be
contacted at jacob(at)sumzero.com for sumzero related inquires. My website is
http://www.valuewalk.com/ Visit Jacob Wolinsky's Website
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Li Lu's Second Lecture at Columbia

Li Lu (Updated on 06/30/2012)

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Comments
Superguru - Jun 27, 2010 at 2:50 PM

Greg Alexander - Do we have more info on what and where he invests?

All I could find was that he works for Ruane.. Goldfarb and he invested in S. Korea and got good
returns.
With Seth hardly investing in stocks and so bearish on US stocks, and Li Lu, it seems, has mostly or
all non US stocks (or may be some non US non stocks) portfolio it seems we are now left with only
Greg Alexander to follow.
( Li Lu, I am guessing, as there are no SEC filings anyone could find, is all or mostly non US).

Silverpill23 - Jun 28, 2010 at 7:16 AM

Thanks for the post. Is there any way to download the video?

Yswolinsky - Jun 28, 2010 at 8:51 AM

Here is some info from _http://www.personalfinanceplaybook.com/2010/06/berkshire-short-listannounced/

I dont know anything about Greg Alexander, except that he works for Ruanne, Cunniff and the
Sequoia fund. When Buffett shuttered his original partnerships this is where he suggested that
investors put their money. Bill Ruane was till alive then, though, and was widely considered to be
leading the charge over there. Alexander has been with the firm since 1985. If Buffett is that
impressed with him, I assume hes a rare talent. This is from a 1996 letter to shareholders, written
by Bill Ruane:
Twelve years ago, Greg Alexander joined us out of Yale where, despite his economics degree, it
appears that he spent most of his time reading annual reports. He is highly creative and still spends
at least eight hours a day consuming annual reports. I dont know anyone who processes more
ideas with greater analytical depth and he is excellent at cutting through to the heart of an issue. He
is a master of chewing through immense detail to reach original insights and judgments about our
portfolio companies.
Anyway, I just found this interesting. Take it for what it is, speculation. Ill keep an eye out for more info
on Alexander. Thanks for reading.

Silver I will see if the video can be embedded

Jacob

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Li Lu's Second Lecture at Columbia

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