Collection: Li Lu - #17 'ONE Question That ALL Successful Value Investors Ask Themselves'


LI LU 00:00

How many of you really consider yourself a value investor? Or more predisposed into value investing? How many of you sort of know for sure that you’re gonna be in kind of asset management business?

So roughly the same number of people who really want to be in the asset management business sort of already consider yourself as a value investor.

So who can really tell me, what are the one of two things that really sort of define a value investor from everybody else? Anybody? Yes, Chase.


One of the things that I think about is just usually they performed depends on the underlying performance of the business –

LI LU 00:44



– other than multiple expansion, trading in and out of the stock based on specimen. So for that reason they have to have a long term (Inaudible).

LI LU 00:55

So in other words, you think that you sort of feel yourself as more of a owner of a business in the sense and therefore, your fortune rise up and down with the nature of the business and how – (BROKEN AUDIO) – Any things to add? Please.


A margin of safety.

LI LU 01:12

Yeah, you sort of you demand a margin of safety in the sense. Anybody else?



LI LU 01:22

Right, right.

Well, that's pretty summarized that there are basically three attitudes straight out of the teachings of Ben Graham that;

  • a. You think yourself as a basically not a paper shuffler in the sense, you really think yourself as an owner of the business.

  • b. You sort of, you know, you demand a huge margin of safety when approaching investment.

  • c. Somehow you sort of think everybody else is different so this is where the Mr.Market analogy come in.

These three things actually kind of – they all, you know, come into – really coming from one perception which is, you know, you think yourself as an owner of business rather than kind of owner of a piece of paper.

And you own a small piece and therefore, you really don't control the business and therefore, sort of is almost self-defense to demand a large margin of safety because whatever value you perceive may not be there because you can't control it.

And then because you thought you’re really owning the business and therefore, you really don't care – you know, if you own a business you don't trade that all the time. And so therefore, you think that you’re somewhat different from just about everybody else in the market participants.

But then the question is if you really feel you're the owner of business, why you want to be in the stock market? The stock market is not created for this type of people. Is that right? The stock market is created is a fractionalized so that everybody can go in and go out. Is that right? Anybody have a view on that one?

Who can tell me that – (BROKEN AUDIO) – asset you think is really kind of managed by value investors? Anybody have any guess? With that kind of perception we just talked about?

There’s no real study but there are a number of attempts of a study including one actually by a professor in the next door in the law school – (Inaudible), yeah – and which really kind of put it roughly under 5% of all asset that actually is consistent from what we just talked about it.

Now, you are really not in the majority, you are actually a very very minority and the stock market is really not created for you. It’s created for the 95% of all the other people and that’s really where your opportunity is and that's where your challenge is.

So to understand that before I go into a management and business, and it's really extraordinarily important – and that's really when I – and that’s what I first learned when I came here and listened to Buffett.

That's one thing that stick in my mind and that really sort of helped me to position where I am because I really know by then what kind of person I am. I think most of your challenge especially those of you who really want to end up in the management business and I'm actually tonight primarily address to that group of people. Sorry for those people that are not.

You were – your biggest challenge is really to understand whether you’re that 5% of the people or you’re the 95% of the majority. And you might think that because of the training because you do this and you sort of, you know, intellectually or theoretically bias towards that small minority group of people.

You’ll be amazed, you know, how much it would have changed. You know, my career sort of take a little twist as well, I always kind of ride my own fun, you know, part of the time when Bruce sort of mentioned was Julian, was really sort of when he invited me to really share an office with him, because he sort of invited a whole bunch of fund managers that he invested in and also share ideas. And that’s when I sort of get a much better understanding of how the 95% of other people really operated.

And you know, it is tempting because you know why 95 percent of the people don't do, you know, what you guys are here try to do, despite the spectacular success of Warren Buffett and Charlie Munger, why is that?

Anybody have a reason? Why is that? Why there’s only – Yes.


Emotionally is very difficult.

LI LU 06:00

Yeah, emotionally is very difficult.

But if you think that, you know, it’s very convincing that value investor is over a long period of time really have much much better kind of returns. you know, you think that’s where the money is, you know, even if it is emotionally difficult. You think they wouldn't change it? Any other reason?


People are measured by short term return.

LI LU 06:23

Right, right. We are actually very close to the point.

I think that the real answer is that’s really where the money is. Why that’s where the money is? Because the market is really created for those group – those kind of people who are really thinking of trading in and out all the time, and therefore that they will pay attention to the short term.

And therefore that if you put up with that requirement, that’s really where the asset is going to find you. And so as a result that’s statistic despite it’s a huge discrepancy of a performance of that 5% have a spectacular return consistently over a long period of time. 95% of the money or something close to that, probably would always reside to somewhere else and if that’s where the money is, you know, most people would naturally would end up there.

So my first kind of a point, I want to leave with you is really to understand who you are because you will be tested through all this period of time. Through your future career development that you’re gonna really have to really faced to ask yourself whether you’re really value investor or you’re not value investor.



[YAPSS Takeaway]

The first step to become a great investor is to really understand who you really are.