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Collection: Li Lu - #14 '3 Rules of Investing'



Okay, so in terms of value investing education, you actually played a big role in promoting and advocating value investing from the books to actually you underwrote this class that we talked about where I went to Peking University and I think it still survives.

What’s your vision for the kind of education that a new investor should embrace and where that education might be available? (Laughter)

LI LU 00:33

Well, first of all, thank you Bruce for coming to teach at the Peking University value investing classes that my colleague Jing Chang and I started six years ago. And now it’s six year and it’s still running and running very well. And you have played an important role to that.

And I think our original inspiration for that class was really based on pretty much your class and your class was pretty much inspired and a continuation of Ben Graham’s class – Graham and Dodd – which had, among others, Warren Buffett as a student. And I’m your student. (Laughter)

There will be many more much brighter investors coming after us. And that’s a good thing. So we’re trying to really do our part to pass on both the philosophy, the thinking, and the practical art of value investing to the next generation, in a sense.

So in terms of like younger students when you start today. So I think a few things will be important. When I talk to young students and people who started out trying to get into the field, I see several things that are important.

‘A’ to always adopt an owners mentality. And so I like to really ask a young student or analyst at our firm basically to imagine that all of a sudden that one of your unknown uncle died and handed over 100% ownership of the company to you. And that’s the business you were going to study. So any company, think starting point that way.

And once you really kind of think you own 100 percent of it, your mentality is totally different. So you never know that business existed, now you own 100%. You have no idea how to run it. You don’t know the people who run it. What do you do?

You want to know everything, everything you can possibly get your hands on. And a lot of the things you know, you don’t really understand. You just know the facts. You don’t understand it. But that’s okay. You’re going to continue to learn until you get a handle of it. And even if then because of the constant change, you’re going to continue to evolve your knowledge of it. Now, if you adopt that mentality, study any businesses, you have really started the process of becoming a real value investor. So that’s the first thing.

The second thing is you really want to maintain intellectual honesty. And that is very, very important. You have to be really honest about what you know, what you assume, what you pretend on subconsciously and what you don’t know. How do you really know that?

One of the things that Charlie has talked about that I think makes the most sense is, he’s said that, “I’m never entitled to have a view until I can find the smartest people on the planet who took the other side of that view and I can argue better that opposition than he does. When I can do that, I would be entitled to have a view.”

The same thing applies to investing in a sense. That intellectual honesty is a good life philosophy to begin with. It is critical. It is vital when it comes to investment. Because, as I said, the security market almost exists to really point it to really to find your weaknesses, your dishonesty, your pretension, your bushy mushy knowledges.

And if you do not really possess that fundamental attitude of intellectual honesty, you’ll get destroyed at some point during your career by the financial market. It was almost designed that way to catch you.


Can I say something about that? Because it is better than designed that way.

LI LU 04:53



Every time you buy a security thinking it’s going to do well, somebody else is selling you that security, thinking it’s going to do badly, and vice versa. And one of you is always wrong. So you better be sure that you’re the one that’s on the right side of that transaction.

LI LU 05:12

Well, there is some zero-sum aspect, but not always.


Oh no! It’s 100% zero sum. (Laughter)

The average return to all investors in any asset class and therefore in all those asset classes is the average return to all those assets.

LI LU 05:29

Hey Bruce, I will just take a slightly different view. But I’m never going to argue against my professor. (Laughter)


Just gonna say –

LI LU 05:37

Let’s just agree to disagree on that point.


Okay. That’s fair. Okay, keep going.

LI LU 05:42

That is a fair point. And another thing I want to say is that you want to really devote as much time as possible to study of the history of businesses and the history of great businessmen in the past.

The more you study more companies, the better you are when it comes to judgment on good opportunities and the judgment about the fundamental characteristic of the company you’re interested in.

And so I say all three things are important. To start with the 100% owner mentality, to continue to train yourself, to have a high degree of intellectual honesty. And lastly, to be a really thorough student of the history of the businesses.

All three things are really going to be very helpful if you are beginning to get into the field of investment or really want to improve your game. So that’s my advice to all your students.


It's a good advice. I'm not going to argue with that.



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