The market isn’t created for value investors.
It is built in a way that increases the urge to speculate.
That’s why businesses are so often misprized in the short term.
Value investors can benefit from this circumstance.
Li Lu is a well-known Superinvestor who has achieved a compounded annual return of about 30% since 1998.
He is also known for managing the money of his good friend Charlie Munger.
Today, he turns 56 years old, and on this occasion, here is some of his timeless wisdom👇🏼
The market isn’t created for value investors.
It is built in a way that increases the urge to speculate.
That’s why businesses are so often misprized in the short term.
Value investors can benefit from this circumstance.
You’ll be more interested in some industries/topics than in others.
And in investing, you can choose in what industries you’ll look for opportunities.
Investors should use this advantage and be sure about their circle of competence.
Being an investor is a lot like being a research journalist.
You have to dig into the company on a level that journalists do when they research their stories.
You also need to clearly articulate your thesis and research and bring it to paper.
A journalist also has to find the truth before he publishes a story.
Same goes for an investor. It could be fatal if he makes a decision before he knows “the truth” about a company.
Thus, he has to avoid all sorts of biases and misleading influences.
One of these biases is the commitment bias.
To avoid this one, Li Lu rarely agrees to public appearances.
The more you talk about investments, the more you talk yourself into them.
The perceived knowledge about a company increases for no reason.
Just as Charlie Munger, Li Lu emphasizes the importance of ROIC as a metric for superior performance and competitive advantages.
The longer your holding period, the more your return will equal the ROIC of the underlying company.
As explained before, stock prices are a lot more volatile than the business behind that stock.
Investors, therefore, should pay attention to slow, long-term changes in the business instead of stock prices.
To Li Lu, the Margin of Safety is a concept of self-defense.
Even if the company is more valuable than the market gives it credit for, the management could destroy this advantage.
This possibility is something investors have to look out for.
Some industries are impossible to value.
Li Lu gives the example of restaurants.
Even if the business is great, there are little to no durable advantages.
Investors shouldn’t try the impossible and just focus on what can be valued.
I hope you learned something new. If you did, why not Retweet and Like this Thread so more people get to see it.
To learn more about Superinvestors, follow me @MnkeDaniel
Now, Happy Birthday to Li Lu and an excellent day for every one of you!
More from Daniel
Rakesh Jhunjhunwala is one of the most successful investors of all time.
He turned ~$100 into $5.8 billion and never managed outside money.
That's a 67% CAGR over 37 years
He never wrote a book, memos, or investing letters.
However, there are some interviews and transcripts👇
Here's a compiled PDF:
https://t.co/ypNv9QeUx9
If you have additional material, please let me know, and I'll update the PDF.
Follow the Substack for free to get all the Resources I read to learn more about investing.
He turned ~$100 into $5.8 billion and never managed outside money.
That's a 67% CAGR over 37 years
He never wrote a book, memos, or investing letters.
However, there are some interviews and transcripts👇
Here's a compiled PDF:
https://t.co/ypNv9QeUx9
If you have additional material, please let me know, and I'll update the PDF.
Follow the Substack for free to get all the Resources I read to learn more about investing.
More from Wise investing
There were some smart folks there before Mr. Buffett. Weston Hicks & his preds at $Y. Larson at Cascade. If you followed what Hunter Harrison was doing at the CN you’d have been there. It had been such a lousy industry I ignored it. Figure out why smart people are in bad assets.
In hindsight, it obviously was a steal...but I think I would have come to the same (wrong) conclusion you did at the time of the announcement.
— Deliberate Capital (Corbin) (@corbinw22) August 9, 2021
Given this info in hindsight, what would you do differently if you came across a similar situation today?
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The entire discussion around Facebook’s disclosures of what happened in 2016 is very frustrating. No exec stopped any investigations, but there were a lot of heated discussions about what to publish and when.
In the spring and summer of 2016, as reported by the Times, activity we traced to GRU was reported to the FBI. This was the standard model of interaction companies used for nation-state attacks against likely US targeted.
In the Spring of 2017, after a deep dive into the Fake News phenomena, the security team wanted to publish an update that covered what we had learned. At this point, we didn’t have any advertising content or the big IRA cluster, but we did know about the GRU model.
This report when through dozens of edits as different equities were represented. I did not have any meetings with Sheryl on the paper, but I can’t speak to whether she was in the loop with my higher-ups.
In the end, the difficult question of attribution was settled by us pointing to the DNI report instead of saying Russia or GRU directly. In my pre-briefs with members of Congress, I made it clear that we believed this action was GRU.
The story doesn\u2019t say you were told not to... it says you did so without approval and they tried to obfuscate what you found. Is that true?
— Sarah Frier (@sarahfrier) November 15, 2018
In the spring and summer of 2016, as reported by the Times, activity we traced to GRU was reported to the FBI. This was the standard model of interaction companies used for nation-state attacks against likely US targeted.
In the Spring of 2017, after a deep dive into the Fake News phenomena, the security team wanted to publish an update that covered what we had learned. At this point, we didn’t have any advertising content or the big IRA cluster, but we did know about the GRU model.
This report when through dozens of edits as different equities were represented. I did not have any meetings with Sheryl on the paper, but I can’t speak to whether she was in the loop with my higher-ups.
In the end, the difficult question of attribution was settled by us pointing to the DNI report instead of saying Russia or GRU directly. In my pre-briefs with members of Congress, I made it clear that we believed this action was GRU.
