This is attributable to an unexpected decision made by Charlie Munger — Warren Buffett’s longtime business partner in the early 2000s. He gave nearly 90 million dollars of his family fortune to a 38-year-old investor named Li Lu.
Li at the time was a financial celebrity, billed as the “Warren Buffett of China. What followed was remarkable. And that $35M first check — turned into about $400M, courtesy of how well that worked out.
Li Lu, founder of Himalaya Capital was known to have practiced the investment principles of Ben Graham much in the same way Munger and Buffett has. Li discovered a more interesting path with Chinese stock rather than the crowded American space. Munger later said, “We made unholy good returns for a long, long time,” having been unable to witness the extent of his family fortune that resulted from entrusting Li with his family money. As Munger put it, the $88 million they initially paid for these things grew four or five times.
The most famous investment by Li is considered to be his early bet on Kweichow Moutai, a liquor distiller that turned into the red nation’s tipple of choice post-revolution. A trust was that Li saw at 4 or 5 times earnings, and he DID have a plan for. The stock then had been purchased as much as possible, paying off in spades when Moutai earned its status one of China’s biggest listed companies. This was definitely not lost on the likes of Munger, who told The Financial Times: “He just backed up the truck, bought all he could and made a killing.”
It is more than just money management for Li and Munger. He addressed this idea explicitly in a 2019 Daily Journal Corporation meeting, mentioning the scarcity of people with whom he could trust his money by outside on a singular occasion “I’m 95 years old. Once in 95 years I’ve given Munger money to some outsider to run. That’s Li Lu.” Yet Munger noticed in Li something of a rare animal—part abstract thinker, part opportunist wizard.
Of course, Li experienced his fair share of obstacles along the road to investment fruition. He escaped from China after the Tiananmen Square protests, and eventually made his way to the U.S., where he attended Columbia University. Struggle and adversity were his teachers early on, which informed the type of investor he would become — a common experience for many successful investors—but where he emerged as different from most others in the field was his ability to take early failures and turn them into future opportunities. Yet Li turned Himalaya Capital into one of the most successful China focused investment funds with his base in Seattle.
Li often spoke to Munger’s mind, pointing out that even in difficult times, Munger appeared to never be broken or defeated. He studied the art of not getting too high; not getting too low — a trait that Munger endorses with a Chinese proverb: “One shouldn’t have any results all that much.
At Munger’s suggestion, Li transformed his closet by removing many of the familiar hedge-fund failings. It gave him the ability to make (and stick with) longer-term investment decisions rather than being pushed/pulled by volatile monthly return data and scrutiny. The Li family fund’s compound annual growth from 2004 to 2009 reached 36%, over a decade, the capital increased more than twenty times.
The partnership of Charlie Munger and Li Lu is gold-standard in terms of what can be achieved when trust, and alignment around set values are pursued within the investing craft. By the standards of virtually anyone else, Munger stood to be seen as completely nuts for entrusting a big part of his family fortune to Li Lu (a virtual “outsider”) but it turned out exceptionally well. Their collaboration demonstrates that in reality success is not simply how well you are able to crunch the numbers but it’s such a bigger picture than just simple analysis — it’s more of a long-term vision coupled with trusting that the right person is at the helm.
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