The Mindset of a Value Investor - Li Lu | CBS 2006【C:L.L Ep.30】

[Transcript]

AUDIENCE MEMBER: Do you have any non-equity investment? Do you invest in stressed economy?

LI LU: Anything.

And in addition to all of that, I would also add one more thing. Okay, so, you know, I said that there's 3 things to distinguish value investors. Okay, so you got business owner mentality, you have a different time horizon, you demand huge margin of safety.

But it all comes from one thing which is sort of – you're a business owner and you're a cautious business owner. And you can't control the outcome of the management, therefore, you demand a compensation – almost self-defense – a margin of safety. And then because you're a business owner you tend to be long term, but they’re all the same.

Now, people would ask me, okay if you're a business owner and why the hell you double with the stock market? Stock market is not meant for the business owners. It is meant for the people who can trade. That was the attraction of the stock market. That's why 95% would never buy into this idea.

Because if everybody, supposed everybody – this would never happen because of human nature – but supposedly a 100% of people all are you know value investors, would there be a stock market? No, hell no, why would buy IPO? Without IPO where is the stock market come from? Where did the secondary market come from? And if everybody demand a huge margin [of safety] then why would anybody sell to you.

So that's why I started the lecture by basically saying that you are basically, you do not belong to the stock market and therefore, you have to always always understand that perspective. And therefore to position yourself properly and don't get carried away.

But if you really really truly a business owner then you will be attracted naturally, sooner or later into owning businesses. And that's why Buffett really left it, Munger left it. Each of them runs a partnership of 13 years and they buy businesses, run a real company. (BROKEN AUDIO) – Or if you’re really kind of, you know, into that money, you become sort of private equity. That's more like a real business in a sense.

But there was evolution, but as long as humans – I mean [two things of why] a value investor and with that kind of perspective, would always find something to do – something profitable to do in the market, that's not meant, that's not designed for them?

One is, that the people – (BROKEN AUDIO) – [stock market is] design for, are fundamentally flawed people. Basically they’re attracted because they want to trade. And if you want to trade, you're bound to make a mistake. You’re bound to really get your emotions carried over. There’s fear, greed or whatever the other emotion in between, you’re bound to make mistakes.

And so when that happens, there will always always be room for guys like you. (BROKEN AUDIO) – you know, supposedly, you are that kind of – that 5%, there will always be opportunity for you.

(Source: https://youtu.be/y3c2PKupiu8)

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